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Moody's Reviewing Large Banks Following Reduction of Gov't Support (GS) (JPM) (WFC) (C) (BAC)

August 22, 2013 4:15 PM EDT
Moody's Investors Service has placed the senior and subordinated debt ratings of the holding companies for the six largest US banks on review as it considers reducing its government (or systemic) support assumptions to reflect the impact of US bank resolution policies. Four -- Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo -- are on review for downgrade. Two, Bank of America and Citigroup, are on review direction uncertain, as the rating agency considers the potentially offsetting influence of improvements in the standalone credit strength of their main operating subsidiaries, the ratings on which were simultaneously placed on review for upgrade. Included in the review are the short-term ratings of several of these bank holding companies, as described further below. Two additional banks, Bank of New York Mellon and State Street, whose ratings were previously placed on review for downgrade, are also included in this review.

At the same time, and also in response to the possible reduction of government support assumptions, the ratings on the bank-level subordinated debt of JP Morgan Chase Bank N.A. and Wells Fargo Bank N.A. were placed on review for downgrade, while those at Bank of America N.A. are on review direction uncertain. The bank-level subordinated debt ratings of The Bank of New York Mellon and State Street Bank and Trust, which were previously placed on review for downgrade, are also included in the review. There is no rated bank-level subordinated debt outstanding at Citibank N.A., Goldman Sachs Bank USA or Morgan Stanley Bank N.A.

Moody's actions follow its March 2013 announcement that it would reassess its support assumptions for bank holding companies in the US and that it would consider whether to revise these assumptions by the end of the year.

As US bank resolution policies continue to evolve, Moody's will assess the opposing forces that may have an impact on bondholders at the holding company level should a bank become financially distressed. The first is a lower level of systemic support that could result in a higher probability of default. The second is the potential for a more orderly workout and a required minimum level of holding company debt that may well limit losses in the event of a default. The reviews will also consider the implications of such policies for bank-level subordinated bonds, which may also be subject to burden-sharing in the event of severe financial distress. In addition, for four of the eight banks -- Bank of America, Citigroup, Bank of New York Mellon, and State Street -- the reviews will also consider the banks' standalone or baseline credit assessments -- positively for the first two, and negatively for the latter two.

"In the past year, we have seen progress towards establishing a framework to credibly resolve these large systemically-important banks, as called for under the Dodd-Frank Act," said Robert Young, Managing Director. "We have also seen greater cooperation and discussion among international banking regulators to manage the coordinated resolution of global banking groups."

The following ratings were placed on review for downgrade:

The Goldman Sachs Group, Inc. -- A3 senior, Baa1 subordinated and Baa3 (hyb) trust preferred vehicles

JP Morgan Chase & Co. -- A2 senior, A3 subordinated, Baa2 (hyb) trust preferred vehicles and Prime-1 short-term rating

JP Morgan Chase Bank N.A. -- A1 subordinated

Morgan Stanley -- Baa1 senior, Baa2 subordinated, Ba1 (hyb) trust preferred vehicles and Prime-2 short-term rating

Wells Fargo & Company, Inc. -- A2 senior, A3 subordinated, Baa1 (hyb) trust preferred vehicles and Prime-1 short-term rating

Wells Fargo Bank, N.A. -- A1 subordinated and A3 (hyb) trust preferred vehicles

Bank of America Corporation -- Prime-2 short-term rating

Citigroup, Inc. -- Prime-2 short-term rating

The following ratings continue to be on review for downgrade, as initiated on July 2, 2013:

The Bank of New York Mellon Corporation -- Aa3 senior, A1 subordinated, A2 (hyb) trust preferred vehicles and Baa1 (hyb) noncumulative preferred

The Bank of New York Mellon -- B bank financial strength rating (BFSR)/aa3 baseline credit assessment (BCA), Aa1 deposits and senior and (P)Aa2 subordinated

State Street Corporation -- A3 (hyb) trust preferred vehicles and Baa1 (hyb) noncumulative preferred

State Street Bank and Trust Company -- B BFSR/aa3 BCA, Aa2 deposits and senior and Aa3 subordinated

The following ratings were placed on review for upgrade:

Bank of America, N.A. -- D+ BFSR/baa3 BCA, A3/Prime-2 deposits and senior

Bank of America Corporation -- B1 (hyb) noncumulative preferred

Citibank, N.A. -- D+ BFSR/baa3 BCA, A3/Prime-2 deposits and senior

Citigroup, Inc. -- B1 (hyb) noncumulative preferred

The following ratings were placed on review direction uncertain:

Bank of America Corporation -- Baa2 senior, Baa3 subordinated and Ba2 (hyb) trust preferred vehicles

Bank of America, N.A. -- Baa1 subordinated

Citigroup, Inc. -- Baa2 senior, Baa3 subordinated and Ba2 (hyb) trust preferred vehicles

State Street Corporation -- A1 senior, A2 subordinated (direction of review initiated July 2 changed from review for downgrade)

The Prime-2 short-term rating of The Goldman Sachs Group, Inc. was affirmed. The noncumulative preferred stock ratings of The Goldman Sachs Group, Inc., JP Morgan Chase & Co., Morgan Stanley and Wells Fargo & Company, Inc. have also been affirmed. The standalone credit assessments and the short- and long-term deposit, issuer, and senior debt ratings of Goldman Sachs Bank USA, JP Morgan Chase Bank N.A., Morgan Stanley Bank N.A. and Wells Fargo Bank, N.A. were also affirmed.


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