Moody's lowers ratings on 15 banks over debt

JP Morgan Chase is one of 15 banks that saw their credit rating lowered by Moody's Investors Service. MARK LENNIHAN / Associated Press, file

By Pallavi Gogoi, Associated Press

Posted: June 22, 2012

NEW YORK - Moody's Investors Service lowered the credit ratings of 15 of the world's largest banks late Thursday, including Bank of America, JPMorgan Chase, and Goldman Sachs, saying their long-term prospects for profitability and growth were shrinking.

The ratings agency said it was especially concerned about banks with significant financial-markets businesses because those markets have become so volatile. Some of the largest European banks were also downgraded, including Barclays, Deutsche Bank and HSBC.

The downgrades mean Moody's is more concerned about the ability of the banks to repay their debts. Moody's had said in February that it was considering downgrading the credit ratings of major U.S. and European banks.

A downgrade usually means that it becomes more costly for banks to raise money by selling debt. Investors demand higher interest for riskier debt, which is what the downgrades represent. However, with interest rates already at rock-bottom levels, the downgrades may not affect the cost of funding for the banks that much.

The stock market has also priced in any harm from the ratings downgrades, according to Bert Ely, a banking consultant in the Washington area.

In a sign that investors were taking the news in stride, stocks of major U.S. banks rose in after-hours electronic trading. Moody's made its announcement after regular stock trading had closed.

The downgrades come amid great uncertainty in the global economy. Europe's currency union is under threat from bad bank loans. The U.S. economy is slowing and the emerging economies of India, Brazil and China are cooling.

Moody's has been on a downgrading spree. In June, Moody's downgraded Spain by three notches, after downgrading 16 Spanish lenders in May. It also cut the ratings on seven German and three Austrian lenders in June.

Among the banks that were downgraded Thursday:

Bank of America's debt was downgraded to Baa2 from Baa1. That's just a couple of notches above junk status.

JPMorgan Chase's debt was downgraded to A2 from Aa3

Citigroup's to Baa2 from A3.

Morgan Stanley's to Baa1 from A2.

Goldman Sachs' to A3 from A1.

HSBC's to Aa3 from Aa2.

Barclay's to A3 from A1.