Moody’s: Too Much Risk

After the shock wore off from Moody’s announcement of its new ratings for the Big Banks, only two U.S. megabanks now have an “A” rating, and just barely.

As you can see from the above chart,  JPM went down two notches to A2 and Goldman was down two notches at A3 (lowest A rating). 

These banks have been devastated by the boom-bust, even after massive bailouts. The bottom line from Moody’s: ”All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.” That is, they are taking too big of a risk on prop trading relative to their capital bases. While Dodd-Frank is designed to stop this (the almost adopted Volcker Rule), the Rule is not yet implemented.

This will be a big fight between politicians and bankers. The SiFis (Systemically Important Financial Institutions) are rallying their forces to oppose, or gut the Volcker Rule.

Until banking can be put on a sound foot with a sound monetary system, we taxpayers are on the hook for their mistakes. If they wish to trade, they should become hedge funds, and not be bailed out when they fail from risky activities. Moral hazard, and all that.

Here is the entire list:

Bank of America Corporation

Long-term senior unsecured debt to Baa2 from Baa1, outlook negative; Short-term P-2 affirmed

Barclays plc

Long-term issuer rating to A3 from A1, outlook negative; Short-term to P-2 from P-1

 Citigroup Inc.

Long-term senior debt to Baa2 from A3, outlook negative; short-term P-2 affirmed

 Credit Suisse Group AG

Provisional senior debt to (P)A2 from (P)Aa2, outlook stable; Provisional Short-term (P)P-1 affirmed

 The Goldman Sachs Group, Inc.

Long-term senior unsecured debt to A3 from A1, outlook negative; Short-term to P-2 from P-1

 HSBC Holdings plc

Long-term senior debt to Aa3 from Aa2, outlook negative; Provisional Short-term (P)P-1 affirmed

 JPMorgan Chase & Co.

Long-term senior debt to A2 from Aa3, outlook negative; Short-term P-1 affirmed

 Morgan Stanley

Long-term senior unsecured debt to Baa1 from A2; outlook negative; Short-term to P-2 from P-1

 Royal Bank of Scotland Group plc

Long-term senior debt to Baa1 from A3, outlook negative; Short-term P-2 affirmed

 Moody’s has taken action on the following operating company ratings:

Bank of America, N.A.

Long-term deposit rating to A3 from A2, outlook stable; Short-term to P-2 from P-1

 Barclays Bank plc

Long-term issuer rating to A2 from Aa3, outlook negative; Short-term P-1 affirmed

 BNP Paribas

Long-term debt and deposit rating to A2 from Aa3; outlook stable; Short-term P-1 affirmed

 Citibank, N.A.

Long-term deposit rating to A3 from A1, outlook stable; Short-term to P-2 from P-1

 Credit Agricole S.A.

Long-term debt and deposit rating to A2 from Aa3, outlook negative; Short-term P-1 affirmed

 Credit Suisse AG

Long-term deposit and senior debt rating to A1 from Aa1, outlook stable; Short-term P-1 affirmed

 Deutsche Bank AG

Long-term deposit rating to A2 from Aa3, outlook stable; Short-term P-1 affirmed

 Goldman Sachs Bank USA

Long-term deposit rating to A2 from Aa3, outlook stable; Short-term P-1 affirmed

 HSBC Bank plc

Long-term deposit rating to Aa3 from Aa2, outlook negative; Short-term P-1 affirmed

 JPMorgan Chase Bank, N.A.

Long-term deposit rating to Aa3 from Aa1, outlook stable; Short-term P-1 affirmed

 Morgan Stanley Bank, N.A.

Long-term deposit rating to A3 from A1, outlook stable; Short-term to P-2 from P-1

 Royal Bank of Canada

Long-term deposit rating to Aa3 from Aa1, outlook stable; Short-term P-1 affirmed

 Royal Bank of Scotland plc

Long-term deposit rating to A3 from A2; outlook negative; Short-term to P-2 from P-1

 Societe Generale

Long-term debt and deposit to A2 from A1; outlook stable; Short-term P-1 affirmed

 UBS AG

Long-term debt and deposit to A2 from Aa3, outlook stable; Short-term P-1 confirmed.

FYI, WF was not reviewed.