Moody’s Investors Service, the ratings agency, on Thursday slashed credit ratings of 15 big global banks in the middle of anxieties that the Eurozone’s economic crisis could cut both earnings and restrict business expansions. The cut in credit ratings, which was part of a global downgrade of bank ratings, could further damage the affected banks’ profits and additionally disconcert the equity markets.
The banks that fell victim to Moody’s action included Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, Citigroup Inc. and Bank of America Corp. Britain also reported that several of its banks fell victim to the action.
"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," Moody's global banking managing director, Greg Bauer, said, according to the Los Angeles Times.
It is pertinent to mention here that Moody’s had warned banks in Feb. this year that a slash in credit ratings was probable. According to experts, the investors’ service agency slashed the credit ratings of banks to new lows to reveal latest risks that the financial sector has come across since the economic emergency.
Moody’s action came as the 15 global banks screened out by the agency struggle to steer all the way through the European financial crisis, which poses major threat to their trading businesses.
“The risks of this industry became apparent in the financial crisis,” said Robert Young, a managing director at Moody’s, according to the New York Times. “These new ratings capture those risks.”
Moody’s slap in the face of the giant banks could make it additionally costly for the financial institutions to magnetize money and invest in riskier undertakings, even though analysts said the relegations were generally predicted and had already been charged into the companies' stocks.
According to the banks’ executives, the latest ratings failed to mirror the protective measures and changes that they had employed in recent years.
“Barclays had its credit rating cut by two notches from A1 to A3, while HSBC, Britain’s largest bank by market capitalisation, saw its rating cut one notch from Aa2 to Aa3,” the Telegraph reported.