Moody’s Mulls Downgrade of Big Banks as U.S. Support Wanes

August 23, 2013 Leave a comment

Moody’s Mulls Downgrade of Big Banks as U.S. Support Wanes

Moody’s Investors Service may cut debt ratings on at least four of the six largest U.S. banks as it examines whether the government would be less likely to ensure creditors are repaid in a crisis. Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS) and Wells Fargo & Co. (WFC) may be downgraded, Moody’s said today in a statement. Bank of America Corp. (BAC) and Citigroup Inc. (C) are under review, with the direction of any rating change uncertain, Moody’s said. Bank of New York Mellon Corp. and State Street Corp. were already under review, Moody’s said.Moody’s and Standard & Poor’s have said downgrades may be needed because the government has new tools to wind down banks instead of rescuing them with taxpayer dollars. Those plans can include forcing debtholders to take losses or convert stakes to equity. The new policies also may have an impact on ratings of the companies’ deposit-taking subsidiaries.

“In the past year, we have seen progress towards establishing a framework to credibly resolve these large systemically important banks,” Robert Young, a Moody’s managing director, said in the report. “We have also seen greater cooperation and discussion among international banking regulators to manage the coordinated resolution of global banking groups.”

Moody’s assigns a rating of A2 for New York-based JPMorgan and San Francisco-based Wells Fargo, A3 for Goldman Sachs, and Baa1 for Morgan Stanley, according to data compiled by Bloomberg. The ratings company has a grade of Baa2 for Bank of America and Citigroup.

Moody’s said in March it would reconsider its assumptions of government support for the largest lenders, and outlined four areas where more work needed to be done for establishing appropriate policies.

To contact the reporters on this story: Donal Griffin in New York at dgriffin10@bloomberg.net; Dakin Campbell in New York at dcampbell27@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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