– S&P downgrades British and US banks (Telegraph, Nov, 30, 2011):
Royal Bank of Scotland, Barclays and HSBC were among a slew of global banks that had their credit ratings cut by ratings agency Standard & Poor’s late last night.
– S&P downgrades 6 biggest US banks (CBS News, Nov, 30, 2011):
(MoneyWatch) —Standard & Poor’s ratings service has cut the ratings of the six largest U.S. bank holding companies by one notch. JP Morgan Chase went from A+ to A; Goldman Sachs, Bank of America, Morgan Stanley and Citigroup were downgraded from A to A-; and Wells Fargo was cut from AA- to A+. Among the eight largest banks, only Boston-based State Street escaped unscathed.
The downgrades were part of more than 37 ratings of large global banks reviewed by the agency. S&P said that it had applied new standards to its methodology that focus on how institutions manage their businesses under market and economic stress. The new standards prompted a downgrade of 15 banks. Downgrades often raise the cost of borrowing for companies, as investors demand a higher interest rate to compensate them for additional risk.
The downgrade could be especially painful for Bank of America, which has dropped over 60 percent this year and remains mired under a cloud of legal issues associated with its ill-fated purchase of Countrywide. In a regulatory filing, the bank said that a downgrade of one level would necessitate the posting of $5.1 billion of additional funds.
Banks are learning the hard way that the easy money has already been made — no more playing with the Fed’s money and booking the profits. Now they need to figure out how to right-size their business models to match a slow growth economy. Masters of the universe are mere mortals after all.
Here’s how each company’s stock closed before the downgrade:
— Bank of America (BAC): $5.07 (new 52-week low)
— Citigroup (C): $25.24
— Goldman Sachs (GS): $88.81
— Morgan Stanley (MS): $13.31
— Wells Fargo (WFC): $24.08
– China Banks Get Higher Grades Than Most U.S. Rivals by S&P (Bloomberg, Nov, 30, 2011):
Bank of China Ltd. (3988) and China Construction Bank Corp. (939) were upgraded by Standard & Poor’s after the ratings firm revised its criteria, giving the Chinese lenders higher grades than most of their largest U.S. rivals.
Bank of China and Construction Bank were raised to A from A-, and Industrial & Commercial Bank of China (601398) Ltd.’s rating was maintained at A, according to a statement issued today. The changes reflect the “very high” likelihood of China’s government providing help for the lenders in the event of financial distress, S&P wrote in separate statements.
Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) had their long-term credit ratings cut to A-, while UBS AG and Barclays Plc were downgraded to A and HSBC Holdings Plc to A+. The Chinese banks’ elevation underscores their turnaround since a decade-long overhaul of the state-run lenders that had cost the Asian nation $650 billion by 2008.
“You look at the liquidity conditions in China, they’re very good. You look at the policy impetus, the likelihood of government support, it’s very very high,” Tom Quarmby, an analyst at Barclays Capital Inc. in Hong Kong, said in a Bloomberg Television interview today. “Whilst lending might be higher risk, it’s just lending, it’s not exotic derivatives businesses or investment banking.”
– S&P rates China banks higher than US rivals (Financial Times, Nov, 30, 2011)