Moody's cuts ratings of 15 global banks: What should they do?(update)

NEW YORK: Moody's Investors Service cut the credit ratings of 15 of
the world's biggest banks on Thursday in an expected move that was part
of a broad review of major financial institutions.
Moody's
announced the review on Feb. 15, saying these global investment banks'
ratings did not capture the evolving challenges of more fragile funding
conditions, wider credit spreads, increased regulatory burdens and more
difficult operating conditions.
"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 in a statement.
Among the moves, Moody's cut JPMorgan's longterm senior to A2 from Aa3 and assigned it a negative outlook.
It also cut Morgan Stanley's longterm senior unsecured debt o nly two notches to Baa1 from A2 and also assigned it a negative outlook.
In February Moody's had said Morgan Stanley could be cut by up to three notches.
Morgan
Stanley had been viewed as the U.S. bank that could suffer the most
from a Moody's downgrade, because of its relatively large trading
operation and because of the extent of the cut that Moody's threatened.
BANK REACTIONS: UBS:
"We
are pleased that they have acknowledged that we have made significant
progress in adapting to changes in the regulatory and capital markets
environment and that UBS has a strong capital position and capital
targets well above its peers, a healthy balance sheet, and limited
exposure to the sovereign debt of European countries rated AA and
below. Our liquidity position remains strong, and our funding position
is conservative, with sources that are diversified by market, product
and currency."
RBC SPOKESWOMAN KATHERINE GAY:
"We remain
one of the strongest and one of the highest rates banks in the world
across a number of categories. We don't expect any impact on our
clients and minimal impact on our business."
MORGAN STANLEY:
"While
Moody's revised ratings are better than its initial guidance of up to
three notches, we believe the ratings still do not fully reflect the
key strategic actions we have taken in recent years. However, their
acknowledgment of our longterm partnership with MUFG as well as our
industryleading capital and liquidity highlight some of the
transformative steps we have taken. With our derisked balance sheet,
stable sources of funding, diverse business mix and strong leadership
team, we are well positioned to deliver for clients and shareholders."
CREDIT SUISSE SPOKESWOMAN VICTORIA HARMON:
"We are better rated than all but two banks."
GOLDMAN SACHS SPOKESMAN DAVID WELLS:
"We
believe our strong credit profile and unique mix of attractive,
highreturn businesses with an institutional client focus will continue
to serve our shareholders, creditors and clients well."
CITIGROUP:
"Citi
strongly disagrees with Moody's analysis of the banking industry and
firmly believes its downgrade of Citi is arbitrary and completely
unwarranted. Moody's approach is backwardlooking and fails to recognize
Citi's transformation over the past several years, the strength and
diversity of Citi's franchise, and the substantial improvements in
Citi's risk management, capital levels and liquidity."
ROYAL BANK OF SCOTLAND:
"The
Group disagrees with Moody's ratings change, which the Group feels is
backwardlooking and does not give adequate credit for the substantial
improvements the Group has made to its balance sheet, funding and risk
profile. Nonetheless, the Group believes the impacts of this downgrade
are manageable, bearing in mind its £153 billion liquidity portfolio.
The amount of collateral that may have to be posted following this one
notch downgrade by Moody's is estimated to be £9 billion as of 31 May
2012. The Group continues to maintain a solid liquidity and funding
position. RBS has completed its planned wholesale funding requirements
for 2012."
BNP PARIBAS:
"This rating action was
anticipated as Moody's placed BNP Paribas on review for possible
downgrade of up to two notches on 15 February 2012. This is part of a
wider action where Moody's placed a number of European banks and
institutions with global market activities on review for possible
downgrade."
"BNP Paribas notes that Moody's recognises the
strength of its universal bank model and very strong retail and
commercial franchises across a variety of product lines and
geographies. Nevertheless, BNP Paribas thinks that the following
important elements have not been sufficiently taken into consideration
by Moody's:"
"BNP Paribas' deleveraging plan, which is now
almost completed, and will allow it to be one of the very few banks
with a fully loaded Basel 3 CET1 ratio of 9% at end2012."
"Its
strong liquidity profile, with 201bn liquid asset reserve immediately
available as at 31 March 2012, amounting to roughly 100% of its
shortterm wholesale funding, and 51bn excess of stable resources
against customer funding needs."
"BNP Paribas' very good
resilience through the crisis, strong solvency, and consistently
cautious risk policy make it one of the most solid banks in the world."
"BNP
Paribas is rated AA by S&P and A+ by Fitch, making it one of the
best rated banks according to those well respected rating agencies."
INVESTORS AND ANALYSTS:
MARK GRANT, MANAGING DIRECTOR AT SOUTHWEST SECURITIES INC:
"The
biggest surprise is the threenotch downgrade of Credit Suisse, which no
one was looking for. In fact, it was Morgan Stanley that was supposed
to be downgraded by that amount and Morgan received only two notches of
cuts."
"Overall, the cost of funding for banks is going to be
higher. It will be more difficult to execute complex trades and you
will see counterparty risk allocations curbed. I wouldn't by any bank
stocks or any stocks, for that matter, here. I would buy senior debt of
banks because spreads are very wide and that represents good
opportunity so long as you stay 'senior' in the capital structure."
BILL SMEAD, CIO AT SMEAD CAPITAL MANAGEMENT:
"We spend all of our time closing barn doors. The animals are already out of the barn."
JOHN BRYNJOLFSSON, MANAGING DIR. OF HEDGE FUND ARMORED WOLF:
"We
don't consider this alarming news at all. We are in the midst of a
global bank delevering, capital building effort of global financial
institutions. With zero percent money rates in the U.S., lowering rates
globally, liquidity pumping globally, and capital outside of banks, on
sidelines, the question is 'When will it be safe to go back in the
water?' Investors have been burned by false starts, and quick trigger
fingers too often."
SUSANNA GIBBONS, VICE PRESIDENT, PORTFOLIO MANAGER FOR FIXED INCOME, RBC GLOBAL ASSET MANAGEMENT:
"At
first glance it looks a little better than people's worst fears, so
that's a positive. Morgan Stanley, I think, was the big question. We
were worried about a threenotch downgrade and they were downgraded two
notches. It looks like nobody was taken down more than expected so
that's good. It was fine and certainly within expectations. It puts
some of the worst fears to bed. Now that this is behind us and it's not
the worst expected I'd say that's a positive for the market."
ERIC FINE, PORTFOLIO MANAGER AT VAN ECK GLOBAL:
"One of the most anticipated events in the latest market cycle and I
think the two notches on Morgan Stanley is less bad than the worst case
which was being increasingly discounted. Because this was so
anticipated and now effectively over, if there were no broader issues
this would most likely be a relief moment. However the so far
unresolved European crisis and more broadly the lack of a serious
longterm fiscal policy fix in the U.S. will both remain weights on the
market."
What should the 15 global banks do now that Moody's has cut their credit ratings?
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Antony Currie
NEW
YORK: What should the 15 global banks do now that Moody's has cut their
credit ratings? Go out and borrow money as quickly as possible is what.
In times past, that might have seemed rash. After all, a debt downgrade is supposed to mean borrowing costs go up.
And
most of the banks affected probably don't need the cash. But jumping
back into the markets quickly is the best way to show up Moody's.
For starters, the rating agency is pretty late to the party, despite the nailbiting attention given its decision.
Rivals
Fitch and Standard&Poor's concluded their reviews last year.
Bondholders, however, took action long before that: they're demanding
higher interest rates from virtually all large financial institutions
before lending to them.
Morgan Stanley , for example, is paying
about 3.9 percentage points above U.S. Treasuries for fiveyear paper,
far more than before the crisis.
And that's after banks were
forced to restructure their balance sheets to reduce risks. Leverage is
down and common equity is up. Meanwhile, most have already addressed
other weak points exposed by the crisis.
There's much less reliance on commercial paper, at least among U.S. banks. Morgan Stanley, Goldman Sachs and Bank of America have none, for example. And many have removed any linkage of repo funding to ratings.
Even
where the actions by Moody's might have an effect, only the woefully
unprepared should feel much pain. Morgan Stanley, for example, will
have to post as much as $6.7 billion in extra collateral after its
twonotch downgrade left it at Baa1.
With almost $180 billion in
excess liquidity, that's hardly a problem. Like its peers, it also
means the bank isn't desperate to raise more cash. What's more, Morgan
Stanley has spent the time since Moody's announced its review in
February restructuring or renegotiating most of the derivatives
contracts that could be hit by the downgrade.
Even the surprises
from Moody's look manageable. Credit Suisse was whacked by three
notches, though still remains a solid Arated credit. So, what better
way to shrug off the news than to head into the market and sell some
bonds? - Reuters

Why Moody's 15 bank downgrades matter? Because they costs banks money.
[You must be registered and logged in to see this link.]

wa piang so lengthy discussion..i am lazy to read le..just use common sense will do

[You must be registered and logged in to see this link.]

Bank Investors Dismiss Moody’s Cuts As Years Too Late
By Dakin Campbell and Michael J. Moore - 2012-06-22T12:02:50Z

summary...the cut will bring the index down because the banks has to pay more or stock up more cash hence their share price goes down pulling the index down....

and finally as Sifu put "really thematic play...this moody s&p etc all culprits man..perhaps they are related to big funds....when big funds short a lot then they come out the news of downgrade etc....really no one is genuine and all conman con for money"

this is like baby crying for milk, in this case industri is trying to paint a bleak picture so fed can politically correct to launch QE3

aam wrote:this is like baby crying for milk, in this case industri is trying to paint a bleak picture so fed can politically correct to launch QE3

kppl80 wrote:

aam wrote:this is like baby crying for milk, in this case industri is trying to paint a bleak picture so fed can politically correct to launch QE3

i hope they can launch QE3 too!