Wednesday, July 28, 2010

Moody's Outlook Negative on Financials

On Tuesday, Moody's changed its outlook on Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) to negative, from stable, citing lessened government support for the institutions under new U.S. regulations.  A negative outlook indicates the banks are more likely to be downgraded over the next 12 to 18 months. The credit ratings agency also said it may cut its ratings on ten regional banks on reduced government support.

Moody's has boosted its debt and bank deposit ratings on large financial institutions since early 2009 on the assumption that they would receive government support in a time of trouble because of the risks they pose to other financial firms and the economy as a whole.  The new financial reform bill, however, is intended "clearly to eliminate government—i.e. taxpayer-support to creditors," Moody's said. Some support, however, is likely to remain for large institutions as regulators work to implement new laws, it added.  "Over the next 12 to 24 months ... we expect that our support assumptions for systemically important banks will likely revert to pre-crisis, or even lower, levels—though we do not anticipate that we would completely eliminate support from these firms' senior debt and deposit ratings," Moody's said.

Moody's rates Bank of America's senior debt A2, the sixth highest investment grade, Citigroup A3, the seventh highest investment grade and Wells Fargo A1, the fifth highest investment grade.  Moody's also said it may downgrade subsidiaries of BB&T, Fifth Third, KeyCorp, PNC, Popular, Regions Financial, SunTrust Banks, US Bancorp, and Zions Bancorp.

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