Moody's threatens 122 banks with credit downgrade
Moody's Investors Service sent shockwaves through the global banking system and sparked fury in the City yesterday as the ratings agency threatened to slash the credit scores of more than 100 banks in the wake of Europe's debt crisis.
The agency has put the ratings of 114 banks in Europe under review, as well as 17 investment banks. The move could hit 122 banks in total as nine of the investment banks are based in Europe.
All four of the UK's big banks – HSBC, Barclays and the state-backed Royal Bank of Scotland and Lloyds – face potential downgrades, affecting their ability to fund themselves in financial markets and potentially hampering an already weak recovery.
Michael Symonds, a bank analyst at Daiwa Capital Markets Europe, said: "The banks are getting it from all sides at the moment – the ratings are only going in one direction. All things being equal, a lower rating will make it more expensive for them to fund themselves and make funding sources scarcer as some bond funds can only hold bonds of a certain rating."
One senior banker said: "This is yet another example of the ratings agencies pandering to the populist mood rather than giving markets and investors anything which is informed, useful or timely."
Moody's assault on the banks came two days after it slashed sovereign ratings on a host of European nations, including putting Britain's AAA credit rating on negative outlook.
The ratings agency blamed "disrupted markets and a deteriorating, uncertain economic outlook" for its bank review but warned that in some countries – such Italy and Spain, whose banks are under the closest scrutiny – doubts over the creditworthiness of governments themselves exacerbated the risks.
Moody's added that investment banks in particular were facing headwinds such as "more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions", which would diminish long-term profits and growth prospects.
Morgan Stanley of the US and two Swiss banks, UBS and Credit Suisse, could be knocked three notches lower on Moody's creditworthiness scale. Goldman Sachs could be downgraded by two notches, the agency said. "Rapidly changing risk positions expose these firms to unexpected losses that can overwhelm the resources of even the largest, most diversified groups," it said.
In December the European Central Bank pumped nearly €500bn (£419bn) into the European financial system, easing the pressure on hundreds of strugglers that took up three-year loans. But the European Banking Authority has also called on the region's banks to bolster their finances by €115bn.
Despite the fury in the City over the cuts, Moody's managing director of European banks, Johannes Wassenberg, denied that the ratings agency was part of the problem, saying it was providing "transparency" to the market. "There is a lot of information assymetry out there between borrowers and lenders, and we are reducing that assymetry."
South Korea ferry: Sewol captain says he is 'sorry to the people of South Korea' and that he delayed evacuating ship in case passengers 'drifted away'
Easter egg hunt horror as mother finds dead body under deck of house
Missing Malaysia Airlines Flight MH370: Wreckage could be found within a week as search reaches 'very critical juncture', says minister
Loch Ness Monster found on Apple Maps?
Royal Tour 2014: Is the Duchess of Cambridge the only person ever to climb into a fighter jet wearing a dress and high heels?
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
Nigel Farage fatigue? Half of voters ‘immune’ to Ukip’s appeal
'Sinful': Video of British Muslims dancing to Pharrell Williams's hit Happy comes under attack
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
Refugee facing deportation from Sweden saved by fellow passengers refusing to let plane leave
- 1 Easter egg hunt horror as mother finds dead body under deck of house
- 2 'Natural' energy drink banned for containing erectile dysfunction drug
- 3 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 4 Loch Ness Monster found on Apple Maps?
- 5 Kingdom Tower: Construction of 1km high new world’s tallest building to begin next week in Saudi Arabia
iJobs Money & Business
£150.00 per week: QA Apprenticeships: This company has been providing on site ...
£221.25 per week: QA Apprenticeships: This company is a well established Inter...
£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...
£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...