Moody’s mulls downgrade of major US banks

Agence France-Presse

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The ratings agency says it is assessing 6 major US banks based on gov't financial reforms impact

POSSIBLE DOWNGRADE. JPMorgan Chase is among the 6 major banks being considered for a downgrade by Moody's. AFP PHOTO/TIMOTHY A. CLARY

NEW YORK CITY, USA – Ratings agency Moody’s said Thursday, August 22, it was mulling a downgrade for 4 major US banks due to an expected reduction in government support under financial reforms.

JPMorgan Chase, the largest US bank by assets; Wells Fargo and investment banks Goldman Sachs and Morgan Stanley were placed under review for a lower credit rating.

Two other banks — Bank of America, the second-largest US bank, and Citigroup — also were under review but the direction of their rating was uncertain, Moody’s said in a statement.

Moody’s said that the 6 largest US banks were under review as it “considers reducing its government (or systemic) support assumptions to reflect the impact of US bank resolution policies.”

Moody’s said it was evaluating the impact of the government’s financial reforms spurred by the 2008 financial crisis.

The largest banks have been forced to come up with plans for their dismantlement in the case that they become insolvent and fail.

The goal is that they can be wound up without the government being forced to step in and prop them and counterparts up as happened in the financial crisis.

“As US bank resolution policies continue to evolve, Moody’s will assess the opposing forces that may have an impact on bondholders at the holding company level should a bank become financially distressed,” the company said.

“The first is a lower level of systemic support that could result in a higher probability of default.

“The second is the potential for a more orderly workout and a required minimum level of holding company debt that may well limit losses in the event of a default.”

Moody’s announced in March that it would reassess its support assumptions for banks in the US and that it would consider whether to revise those assumptions by the end of the year. –

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