June 10, 2012
Big US banks brace for downgrades
Banks, bond issuers and investors are bracing for aftershocks from a wave of bank downgrades expected to hit the U.S. as soon as the coming week.
Moody's Investors Service has said it is likely to reduce by the end of June credit ratings for 17 large global banks, including five of the six biggest U.S. financial firms by assets.
The downgrades are expected to raise borrowing costs and crimp some lucrative trading businesses at the banks, including at J.P. Morgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley.
The impending downgrades are adding to the unease already plaguing banks, investors and borrowers. Financial markets are on edge as the European debt crisis deepens and the likelihood grows of a Greek exit from the euro zone. Economies in the U.S. and China are showing signs of slowing.
While banks and investors all anticipate downgrades in the coming week, many banks have lobbied Moody's to limit the size of its cuts.
The downgrades would mean that Moody's ratings for the five U.S. banking giants are the lowest of the three major credit-rating firms. While Moody's has given the market plenty of notice, some investors worry that action by Moody's could precipitate downgrades by S&P and Fitch.
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