On February 15, Moody’s announced a blanket review of 17 banks that operate in global capital markets.
Max Nisen and Simone Foxman report for Business Insider, June 15, 2012, that Moody’s rationale for its review is that the banks “face challenges that are not fully captured in their current ratings” — those of “more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions.” As a result, the banks’ longer term profitability and growth prospects are greatly “diminished.”
Downgrades on these major banks would have a serious financial impact on not just those banks, but on “counterparties” who have derivatives contracts with the banks.
So far, two of the 17 banks listed have been downgraded. The remaining 15 may be rated down by Moody sometime this month.
Here are the 17 banks, beginning with the two that Moody’s already downgraded:
1. Nomura: Downgraded one notch to Baa3 on March 15.
2. Macquarie: Downgrade two to A3 on March 16.
3. Bank of America: Potential downgrading by one notch from the current Baa1 rating to Baa2. Potential damage of $3.5 billion.
4. Societe Generale: Possible downgrading by one notch from A1 to A2. Estimated collateral costs are unavailable.
5. Barclays: Possible downgrading by 2 notches from Aa3 to A1. Estimated collateral costs unavailable.
6. BNP Paribas: Possible downgrading by 2 notches from Aa3 to A1. Estimated collateral costs unavailable.
7. Citigroup: Possible downgrading by 2 notches from A3 to Baa2. Potential damage of $1.1 billion.
8. Credit Agricole: Aa3 to A2. Estimated collateral costs available.
9. Deutsch Bank: Aa3 to A2. Potential damage € 168 billion to € 246 billion.
10. Goldman Sachs: A1 to A3. Potential damage $6.8 billion.
11. HSBC: Aa2 to A1. Estimated collateral costs unavailable.
12. JP Morgan: Aa3 to A2. Potential damage $4.7 billion.
13. Royal Bank of Canada: Aa1 to Aa3. Potential damage $6.7 billion.
14. Credit Suisse: Aa2 to A2. Potential damage CHF 4.5 billion (about $4.73 billion).
15. Morgan Stanley: A2 to Baa2 (3 notches!). Potential damage $9.519 billion.
16. UBS: Aa3 to A3 (3 notches). Potential damage CHF 7 billion (around $7.3 billion).
17. Strangely, Business Insider doesn’t give a 17th bank.