Moody's Moots Downgrade Of Top US Banks

(RTTNews) - Moody's Investors Service on Thursday warned that it may cut the credit ratings of some of the largest US banks in response to the possible reduction of government support assumptions. The credit ratings agency has placed the senior and subordinated debt ratings of the holding companies for these banks on review.

Four of these- Goldman Sachs (GS), JP Morgan Chase (JPM), Morgan Stanley (MS) and Wells Fargo (WFC)-- are on review for downgrade.

Bank of America (BAC) and Citigroup (C) are on review with the direction of the rating action uncertain. This is because Moody's is taking into account the influence of improvements in the standalone credit strength of their main operating subsidiaries, the ratings on which were placed on review for upgrade.

The review includes the short-term ratings of several of these bank holding companies. Bank of New York Mellon (BK) and State Street (STT), whose ratings were previously placed on review for downgrade, are also included in the review.

The government now has new tools to handle banks if they got into trouble, rather than bail them out using taxpayer's money. These tools may force bondholders to take losses or convert their holdings into equity.

According to Moody's, as US bank resolution policies evolve, the agency will review two opposing effects that influence risks for bondholders at the holding company level.

The first effect is the reduced likelihood and predictability of systemic support resulting from a credible bank resolution mechanism. The second is the possible reduction in the severity of losses for holding company creditors in case of a default under a future US bank resolution.

The ratings on the bank-level subordinated debt of JP Morgan Chase Bank N.A. and Wells Fargo Bank N.A. were placed on review for downgrade, while those at Bank of America N.A. are on review direction uncertain.

Those of The Bank of New York Mellon and State Street Bank and Trust, which were previously placed on review for downgrade, are also included in the review.

There is no rated bank-level subordinated debt outstanding at Citibank N.A., Goldman Sachs Bank USA or Morgan Stanley Bank N.A.

A2 senior, A3 subordinated, Baa2 (hyb) trust preferred vehicles and Prime-1 short-term rating of JP Morgan Chase were placed on review for downgrade, while for Goldman Sachs, ratings on A3 senior, Baa1 subordinated and Baa3 (hyb) trust preferred vehicles may be reduced.

For Morgan Stanley, ratings under review include Baa1 senior, Baa2 subordinated, Ba1 (hyb) trust preferred vehicles and Prime-2 short-term rating. Wells Fargo's A2 senior, A3 subordinated, Baa1 (hyb) trust preferred vehicles and Prime-1 short-term rating also come under the scanner.

Prime-2 short-term ratings of Bank of America and Citigroup are on review for downgrade.

Moody's had said in March that it would reassess its support assumptions for bank holding companies in the U.S. and that it would consider whether to revise these assumptions by the end of the year. The latest actions are a follow-up of this reassessment.