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Moody's cuts rating of three big banks
Source: Agencies |
September 23, 2011, Friday
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THREE of the top US banks are likely to start paying more to borrow money.
Credit rating agency Moody's has lowered its ratings for Bank of America, Wells Fargo and Citigroup, saying it has become less likely the US government would step in to prevent any of the three lenders failing.
David Fanger, senior vice president at Moody's, said: "The probability of government support is less now than during the financial crisis."
The downgrades were widely expected after the agency placed the three banks on review in June.
The cuts also stem partly from new laws under the Dodd-Frank Wall Street Reform Act that ended the possibility of the government bailing out a large financial firm, and created a process that would allow a bank to fail and liquidate its assets.
Bank of America was hit worst. Moody's downgraded its key long-term debt ratings two notches, to Baa1 from A2. Wells Fargo's long-term debt rating fell one notch to A2 from A1. Citigroup's rating remained the same at A3, but Moody's downgraded its short-term debt.
Bank of America's ratings are the lowest among the three. All are rated investment grade.
A downgrade is a warning to buyers of debt that the chance that they will not get their money back has increased. Downgrades usually lead to higher borrowing costs for the issuer because investors want more interest if they are taking a bigger risk.
In a statement, Bank of America said: "While we disagree with their conclusions and we believe our ratings should be higher, to minimize any potential impact of this decision on our business, we have been managing our liquidity carefully and we have prefunded our planned borrowing needs for the year."
Moody's also downgraded Bank of America's long-term deposit ratings to A2 from Aa3.
Citigroup was also not happy at having its short-term ratings downgraded. The bank said in a statement that it disagreed with the Moody's decision.
Moody's downgraded the short-term rating of Citigroup to Prime-2 from Prime-1.
Moody's said its downgrade of Wells Fargo was driven solely by the reduced government support. Moody's also downgraded Wells Fargo's bank deposit ratings to Aa3 from Aa2.
Credit rating agency Moody's has lowered its ratings for Bank of America, Wells Fargo and Citigroup, saying it has become less likely the US government would step in to prevent any of the three lenders failing.
David Fanger, senior vice president at Moody's, said: "The probability of government support is less now than during the financial crisis."
The downgrades were widely expected after the agency placed the three banks on review in June.
The cuts also stem partly from new laws under the Dodd-Frank Wall Street Reform Act that ended the possibility of the government bailing out a large financial firm, and created a process that would allow a bank to fail and liquidate its assets.
Bank of America was hit worst. Moody's downgraded its key long-term debt ratings two notches, to Baa1 from A2. Wells Fargo's long-term debt rating fell one notch to A2 from A1. Citigroup's rating remained the same at A3, but Moody's downgraded its short-term debt.
Bank of America's ratings are the lowest among the three. All are rated investment grade.
A downgrade is a warning to buyers of debt that the chance that they will not get their money back has increased. Downgrades usually lead to higher borrowing costs for the issuer because investors want more interest if they are taking a bigger risk.
In a statement, Bank of America said: "While we disagree with their conclusions and we believe our ratings should be higher, to minimize any potential impact of this decision on our business, we have been managing our liquidity carefully and we have prefunded our planned borrowing needs for the year."
Moody's also downgraded Bank of America's long-term deposit ratings to A2 from Aa3.
Citigroup was also not happy at having its short-term ratings downgraded. The bank said in a statement that it disagreed with the Moody's decision.
Moody's downgraded the short-term rating of Citigroup to Prime-2 from Prime-1.
Moody's said its downgrade of Wells Fargo was driven solely by the reduced government support. Moody's also downgraded Wells Fargo's bank deposit ratings to Aa3 from Aa2.
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