Nomura Securities on U.S. Bank & Brokers: S&P Rebases Rating Method, Changes Largely Anticipated
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Rating Summary:
10 Buy, 14 Hold, 3 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 13 | Down: 28 | New: 14
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Nomura Securities on U.S. Bank & Brokers: S&P Rebases Rating Method, Changes Largely Anticipated
Nomura analyst, Glenn Schorr, said, "As anticipated, S&P revised its bank rating methodology and its application to the 37 largest financial institutions was released today (expect many more over the next 2 weeks). The banks and brokers in our coverage are mostly all in the same boat with a one notch downgrade at the holding company level and most of the subs and BofA (NYSE: BAC), Citi (NYSE: C), Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) each moved to an A-2 short term at the holdco level. Importantly, the bank and broker subs (where most of the balance sheet resides) remain a notch above the parent and have kept their short-term A-1 ratings."
"All in, while not a good thing and the banks remain on negative watch, we think these changes have been well telegraphed by now and we don’t expect much of a reaction in the equity or debt markets. In our view, banks have been well prepared for these ratings actions and have reduced reliance on CP, built up significant liquidity buffers, reduced repo on less-liquid assets with Rule 2a-7 money funds, termed out repo at the broker-dealer subs, moved as much business as possible to their highly rated bank subs, prepared key counterparties, and prefunded much of their funding needs over the next 12 months. We also don’t expect any collateral call triggers in the secured funding markets due to these events."
"Clearing Business also Hit by Downgrade - JPMorgan's (NYSE: JPM) clearing, and Bank of NY (NYSE: BK) were also all downgraded a notch to A+, while State Street (NYSE: STT) remained unchanged at A+. Though we do not expect this to have any business impact, it likely keeps capital higher longer and could raise funding costs."
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Nomura analyst, Glenn Schorr, said, "As anticipated, S&P revised its bank rating methodology and its application to the 37 largest financial institutions was released today (expect many more over the next 2 weeks). The banks and brokers in our coverage are mostly all in the same boat with a one notch downgrade at the holding company level and most of the subs and BofA (NYSE: BAC), Citi (NYSE: C), Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) each moved to an A-2 short term at the holdco level. Importantly, the bank and broker subs (where most of the balance sheet resides) remain a notch above the parent and have kept their short-term A-1 ratings."
"All in, while not a good thing and the banks remain on negative watch, we think these changes have been well telegraphed by now and we don’t expect much of a reaction in the equity or debt markets. In our view, banks have been well prepared for these ratings actions and have reduced reliance on CP, built up significant liquidity buffers, reduced repo on less-liquid assets with Rule 2a-7 money funds, termed out repo at the broker-dealer subs, moved as much business as possible to their highly rated bank subs, prepared key counterparties, and prefunded much of their funding needs over the next 12 months. We also don’t expect any collateral call triggers in the secured funding markets due to these events."
"Clearing Business also Hit by Downgrade - JPMorgan's (NYSE: JPM) clearing, and Bank of NY (NYSE: BK) were also all downgraded a notch to A+, while State Street (NYSE: STT) remained unchanged at A+. Though we do not expect this to have any business impact, it likely keeps capital higher longer and could raise funding costs."
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Analyst Comments, DowngradesRelated Entities
JPMorgan, Citi, Morgan Stanley, Bank of America, Standard & Poor's, Nomura
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