Financial stocks were mixed on Friday after Standard & Poor's cut the ratings on 11 U.S. and European banks by either one or two notches.
S&P cut ratings on
Bank of America
Royal Bank of Scotland
along with their bank subsidiaries.
outlook was revised to negative, though its rating remained unchanged.
S&P is also adjusting how it rates some banks to reflect recent government support for the sector and the institutions themselves. All 12 banks still carry investment-grade ratings. The banks' ratings range between "A" and "AA+."
The Keefe, Bruyette & Woods bank stock index was down fractionally in recent trading.
Banks are facing increasing industry risk amid the deepening economic slowdown, and that is likely to affect their future performance, S&P said. The ratings agency now expects higher levels of stress on the sector during this downturn than in past slowdowns.
Unprecedented government intervention into the bank sector also will now play a role in ratings actions, S&P said. For banks that are viewed as highly important to the stability of the banking sector in the U.S. or Europe, S&P will now provide an issuer credit rating, it said. The issuer credit rating demonstrates that the bank would receive support from the government to maintain stability in the sector, thus making it more creditworthy.
Moody Investor Services also downgraded
citing "sizable challenges" for the big bank.
Fitch Ratings reiterated that it had a negative outlook on the U.S. financial sector.
"Key financial metrics will remain significantly weak for 2009 due to an expected bleak operating environment," Fitch said. "Profitability and credit quality metrics are expected to exhibit high degrees of stress. Recent consolidation and government intervention result in a higher concentration of banking assets in fewer institutions."
That being said, the ratings agency does not expect the ratings downgrades next year "to be as numerous or drastic" as in 2008. The majority of rating downgrades will likely be on regional institutions "which face greater loan concentrations due to location."
In recent months, amid the deepening credit crisis and recession, the U.S. government has instituted multiple lending and financing programs to help support banks that have seen their funding options dwindle amid the turmoil.
The broadest program, which was launched in October, calls for the U.S. government to directly invest capital into banks in return for preferred stock and warrants to purchase common shares. The $700 billion program is being administered by the Treasury Department.
BofA, JPMorgan Chase, Wells Fargo, Citi, Goldman Sachs and Morgan Stanley all received between $10 billion and $25 billion as part of the program.
Shares of Citi were down 5.3% to $7.04 in recent trading. Wells Fargo shares were down 1% to $29.35. BofA's stock was off fractionally. Foreign-based banks Credit Suisse, RBS, UBS and HSBC all were down at least 2%.
On the flip side, JPMorgan and Morgan Stanley were making fractional gains, while Barclay's was up 3.6% and Deutsche Bank was up 1.5%.
Separately on Friday, shares of
shrugged off the bank's plans to shed 1,000 positions amid the economic downturn. The stock was up 2.1%. Sovereign is the latest large regional bank to announce such plans. Large banks including BofA, Citi, even JPMorgan Chase are cutting workers as they shuffle through the tumultuous environment these days.
surged 58% after
said it would acquire the Baltimore firm for $401 million. M&T shares were down roughly 5.5% on Friday.