Moody’s Downgrades Big Banks

Wednesday, September 21, 2011 12:31pm
Three letter A's in a row with the last one shrivelling up
September 21, 2011 – Borrowers looking for a personal loan from their bank may see some changes in the banks from which they can receive one, as Moody’s Investors Service downgraded three big banks’ ratings yesterday. Stock declined early today as a result of the downgrade.

The affected banks, which were placed on review in June, are Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. Experts say it is too early to tell what effect these ratings will have, but Moody’s says they are a result of the federal government’s perceived inability or unwillingness to back a failing bank with federal funds in the event of a crisis.

“It is … more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute,” a Moody’s press release said. “Moody's is therefore lowering the amount of support it incorporates into Bank of America's ratings to levels reflected prior to the crisis.”

Bank of America’s long-term debt rating went from Baa1 to A2 and its short-term debt rating from Prime-2 to Prime-1. Wells Fargo’s long-term went from A2 to A1 and its short-term remained at Prime-1. Citigroup’s long-term rating remained at A3, but Moody’s downgraded its short-term debt from Prime-2 to Prime-1.

In their statements regarding the new ratings, the banks said that the downgrade will not have a huge impact and does not indicate a failure in their banking system.

“The action does not affect Wells Fargo's unsupported ratings, which were affirmed today at A2 for WFBNA and A3 for WF&Co. that have been increased three times since 2009, most recently on December 6th 2010. Our short-terms ratings were not a part of this review and were again affirmed at Prime-1 today," Wells Fargo’s statement said.

A Citigroup statement agreed that the numbers did not reflect the bank’s current condition.

"It does not accurately reflect the significant progress Citi has made since Moody's last rated Citi more than two-and-a-half years ago," the statement said.

Moody’s said that the downgrades do not reflect the banks’ credit quality.