A set of possible multi-notch downgrades may not drive banks into a capital spiral, even if they were met by similar moves at ratings agencies Standard & Poor's and Fitch, which could cost roughly a combined $20 billion for JPMorgan, Bank of America (BAC), Morgan Stanley (MS), Citigroup (C ) and Goldman Sachs (GS), as the banks have disclosed.
"What we've seen with the largest banks, and U.S. banks in particular, is that their liquidity profile has improved after the crisis," said Joo-Yung Lee, the head of Fitch Ratings' North American financial institutions team, of the prospective ratings cuts, in a March 27 interview .
"In blunt terms, in our view, Moody's just doesn't think it is as good an industry as they did in the past," wrote Schorr of Nomura in March, who says the industry average rating could fall to "Baa." Four years ago, few on Wall Street would have said banks couldn't survive such ratings. Now, with transformed balance sheets and new funding sources, known as liquidity, ratings cuts may be a headwind for profitability but not a deathblow.
"Capital markets firms are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions," said Moody's in February when announcing its ratings review.Currently, Standard & Poor's and Fitch have yet to cut U.S. bank ratings, since a series of downgrades in the second half of 2012. If all cuts under review by Moody's were made and matched Standard & Poor's and Fitch, [they currently hold higher ratings and a more positive outlook on average] JPMorgan's "fortress balance" sheet would be an industry leader at A2, a not so prestigious rating. For more on bank stocks, see Bank of America was a ratings cut loser and what Warren Buffett knows about bank investing that you don't. -- Written by Antoine Gara in New York.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV