Friday, 22 June 2012

Moody’s: Too Much Risk

After the shock wore off from Moody’s announcement of its new ratings for the Big Banks, only two U.S. megabanks now have an “A” rating, and just barely. As you can see from the above chart,  JPM went down two notches to A2 and Goldman was down two notches at A3 (lowest A rating).  These banks have been devastated by the boom-bust, even after massive bailouts.
The bottom line from Moody’s: ”All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.”

That is, they are taking too big of a risk on prop trading relative to their capital bases. While Dodd-Frank is designed to stop this (the almost adopted Volcker Rule), the Rule is not yet implemented.

This will be a big fight between politicians and bankers. The SiFis (Systemically Important Financial Institutions) are rallying their forces to oppose, or gut the Volcker Rule.

Until banking can be put on a sound foot with a sound monetary system, we taxpayers are on the hook for their mistakes. If they wish to trade, they should become hedge funds, and not be bailed out when they fail from risky activities. Moral hazard, and all that.

Here is the entire list:
Bank of America Corporation
Long-term senior unsecured debt to Baa2 from Baa1, outlook negative; Short-term P-2 affirmed
Barclays plc
Long-term issuer rating to A3 from A1, outlook negative; Short-term to P-2 from P-1
 Citigroup Inc.
Long-term senior debt to Baa2 from A3, outlook negative; short-term P-2 affirmed
 Credit Suisse Group AG
Provisional senior debt to (P)A2 from (P)Aa2, outlook stable; Provisional Short-term (P)P-1 affirmed
 The Goldman Sachs Group, Inc.
Long-term senior unsecured debt to A3 from A1, outlook negative; Short-term to P-2 from P-1
 HSBC Holdings plc
Long-term senior debt to Aa3 from Aa2, outlook negative; Provisional Short-term (P)P-1 affirmed
 JPMorgan Chase & Co.
Long-term senior debt to A2 from Aa3, outlook negative; Short-term P-1 affirmed
 Morgan Stanley
Long-term senior unsecured debt to Baa1 from A2; outlook negative; Short-term to P-2 from P-1
 Royal Bank of Scotland Group plc
Long-term senior debt to Baa1 from A3, outlook negative; Short-term P-2 affirmed
 Moody’s has taken action on the following operating company ratings:
Bank of America, N.A.
Long-term deposit rating to A3 from A2, outlook stable; Short-term to P-2 from P-1
 Barclays Bank plc
Long-term issuer rating to A2 from Aa3, outlook negative; Short-term P-1 affirmed
 BNP Paribas
Long-term debt and deposit rating to A2 from Aa3; outlook stable; Short-term P-1 affirmed
 Citibank, N.A.
Long-term deposit rating to A3 from A1, outlook stable; Short-term to P-2 from P-1
 Credit Agricole S.A.
Long-term debt and deposit rating to A2 from Aa3, outlook negative; Short-term P-1 affirmed
 Credit Suisse AG
Long-term deposit and senior debt rating to A1 from Aa1, outlook stable; Short-term P-1 affirmed
 Deutsche Bank AG
Long-term deposit rating to A2 from Aa3, outlook stable; Short-term P-1 affirmed
 Goldman Sachs Bank USA
Long-term deposit rating to A2 from Aa3, outlook stable; Short-term P-1 affirmed
 HSBC Bank plc
Long-term deposit rating to Aa3 from Aa2, outlook negative; Short-term P-1 affirmed
 JPMorgan Chase Bank, N.A.
Long-term deposit rating to Aa3 from Aa1, outlook stable; Short-term P-1 affirmed
 Morgan Stanley Bank, N.A.
Long-term deposit rating to A3 from A1, outlook stable; Short-term to P-2 from P-1
 Royal Bank of Canada
Long-term deposit rating to Aa3 from Aa1, outlook stable; Short-term P-1 affirmed
 Royal Bank of Scotland plc
Long-term deposit rating to A3 from A2; outlook negative; Short-term to P-2 from P-1
 Societe Generale
Long-term debt and deposit to A2 from A1; outlook stable; Short-term P-1 affirmed
 UBS AG
Long-term debt and deposit to A2 from Aa3, outlook stable; Short-term P-1 confirmed.

FYI, WF was not reviewed.

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