Standard & Poor’s downgraded the credit ratings of 11 top global banks on Friday including Citibank, Deutsche Bank and JP Morgan, citing increased industry risk and a deepening economic slowdown.
The agency cut its ratings on Citibank, Morgan Stanley and Goldman Sachs Group each by two notches.
It cut Bank of America, JP Morgan Chase and Wells Fargo by one notch.
In Europe, S&P shaved one notch off the ratings of Barclays, Credit Suisse, Deutsche Bank, Royal Bank of Scotland and UBS. It kept the rating of HSBC Bank, part of HSBC Holdings Plc, at AA but downgraded its outlook to negative from stable.
“The downgrades and revised outlooks reflect our view of the significant pressure on large complex financial institutions’ future performance due to increasing bank industry risk and the deepening global economic slowdown,” S&P said in a note.
Traders said it was difficult to gauge the market reaction because trading was thin as markets slow towards year-end.
“Banks are in a deteriorating operating environment, so the ratings changes should not be a surprise,” said Nigel Myer, a credit analyst at Dresdner Kleinwort.
Further ahead, the credit rating agency said business model-related issues have yet to be sorted across the sector and will take more time to resolve.
Some of the other long-term fundamental issues faced by financial institutions include the confidence-sensitive nature of their business, likely regulation pressures that may require them to deleverage further, reassess their risk profiles and restrict some business activities, S&P said.
“These assessments include our expectation that these various measures may result in structurally lower profitability levels and significantly higher loan losses in the medium term.”
S&P said that government intervention intended to stabilize the sector and restore public confidence may balance the pressure faced by the industry to a large extent.
The rating agency said it was introducing, for the first time, issuer credit ratings (ICR) for banks of systemic importance and the number of notches of support attributed for expected possible future government support for those banks.
(Reuters)
