cmaukonen's picture

    Moody's downgrades 15 major banks

    By cmaukonen on Thu, 06/21/2012 - 8:21pm |

    Well we can't say anyone didn't see this coming. But I still find it interesting, especially the timing.

    Right on the heels of a fairly large corruption case that could...I repeat could, blow the lid off a lot of other fraudulent practices.  And the Euro Zone on a ledge.

    In the US, Bank of America, Citigroup, Goldman Sachs and JP Morgan are among those marked down.

    BBC business editor Robert Peston reported on Tuesday that the downgrades were coming and said that banks were concerned as it may make it harder for them to borrow money commercially.

    "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," Moody's global banking managing director Greg Bauer said in the agency's statement.

    The other institutions that have been downgraded are Credit Suisse, UBS, BNP Paribas, Credit Agricole, Societe Generale, Deutsche Bank, Royal Bank of Canada and Morgan Stanley.

    Moody's said it recognised, "the clear intent of governments around the world to reduce support for creditors", but added that they had not yet put the frameworks in place that would allow them to let banks fail. BBC

    The last sentence is key to me. Do they mean to imply that these banks could and in fact should be allowed to fail ? 

    We know they are up to their eyeballs in derivative exposure. To the tune of billions of dollars or more.

    Interesting comment from a ratings agency.

     

    Comments

    I expect to see some sort of a financial crisis before the elections and statements from  Romney (and maybe a few republicans) that will make them look like even bigger horses asses than they already do.


    by cmaukonen on Thu, 06/21/2012 - 9:56pm

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    by wavettore (not verified) on Thu, 06/21/2012 - 10:10pm

     

    Looks like interesting times ahead.  Below is a current list of the Fed 's Primary Dealers with the ones from your list highlighted.  They are also Primary Dealers for just about every in Europe central bank.
     
    Bank of Nova Scotia, New York Agency
    BMO Capital Markets Corp.
    BNP Paribas Securities Corp.
    Barclays Capital Inc.
    Cantor Fitzgerald & Co.
    Citigroup Global Markets Inc.
    Credit Suisse Securities (USA) LLC
    Daiwa Capital Markets America Inc.
    Deutsche Bank Securities Inc.
    Goldman, Sachs & Co.
    HSBC Securities (USA) Inc.
    Jefferies & Company, Inc.
    J.P. Morgan Securities LLC
    Merrill Lynch, Pierce, Fenner & Smith Incorporated [assumed Bank of America's role after merger]
    Mizuho Securities USA Inc.
    Morgan Stanley & Co. LLC
    Nomura Securities International, Inc.
    RBC Capital Markets, LLC
    RBS Securities Inc.
    SG Americas Securities, LLC
    UBS Securities LLC.

    by EmmaZahn on Thu, 06/21/2012 - 10:17pm

    Interesting indeed.

     

    OT This is the kind of stuff I tend to pay attention to these days.

    The political theater that gets so much attention is merely a kabuki dance to keep everyone else entertained.  The final act of which has already been written with few (if any) re-writes allowed.


    by cmaukonen on Thu, 06/21/2012 - 10:27pm

    Here's something else on this story.

    Moody's downgrades firms with global capital markets operations | Credit Writedowns

    Their list included HSBC from the Primary Dealer list as well.

     


    by EmmaZahn on Thu, 06/21/2012 - 10:34pm

    I love the way they grouped them. Degrees of horrible.smiley


    by cmaukonen on Thu, 06/21/2012 - 11:54pm

    Well, bankers said they shouldn't be regulated, because the free market would discipline them.

    Here's a very small taste of discipline. The anti-regulation types should be celebrating.


    by Doctor Cleveland on Fri, 06/22/2012 - 5:55am

    I don't think that Moody's is saying that these banks should be allowed to fail.  I think what they're saying is this, with a nudge and a wink: "look, bond investors -- you're pricing these bonds as if there's a government guaranty and, when push comes to shove, you're probably right that developed country governments will not allow for a catastrophic bankruptcy.  But, we're downgrading them because, in the event that something goes wrong, bondholders will take a haircut this time."

    There is now, basically headline risk.  A lot of people who never though about topics like bondholders taking haircuts before 2008, know a ton about it now.  Were the U.S. government to attempt to, say, re-rescue Citigroup, the public would know in great detail what's going on.  There would be no cover of confusion.  There would be political consequences for any politician who made the bondholders whole first, in the midst of a new foreclosure wave or credit lockdown.\

    That's pure speculation on my part, of course.


    by Michael Maiello on Fri, 06/22/2012 - 12:42pm

    I was going to point out that the parties most affected likely already knew this was coming but I'll let Salmon say it for me:

    Every single downgraded bank is higher today, in a classic case of the market selling the rumor and buying on the news.

    What else he says is really a must read for anyone interested in this topic.  For example:

    But in fact there’s more to the downgrades than that. For one thing, they more or less kill any hope that the interbank market will ever be resuscitated. It’s been moribund since 2007, especially in Europe but also in the US, and the death of the interbank market is a very important and very worrying long-term phenomenon. It makes central banks much more important, and also much riskier. What’s more, because central banks don’t lend at different rates on the basis of perceived differences in credit risk, it hurts price discovery. And then of course there’s the trillions of dollars of loans and floating-rate bonds which are priced off Libor, which is an increasingly fictional construct.

    http://blogs.reuters.com/felix-salmon/2012/06/22/moodys-ratifies-interbank-mistrust/


    by EmmaZahn on Sat, 06/23/2012 - 4:56am

    I know little about this subject. And the subject runs the world.

    But depending upon Moody in order to make one's investments is kind of like depending upon the RNC to show us the way to a national Civil Rights Program; or depending upon fascist talk radio for information concerning our national course; or depending upon McDonalds to show us the way to true nutrition; or depending upon the messages of Hustler in order to find true love; or depending upon the sermons of Robertson to find the ONE TRUE GOD; or depending upon Willard to take us upon a brand new immigration policy; or depending upon reality shows to bring us to some true reality.

    IT AINT GONNA HAPPEN.

    Like someone said a few months ago:

    Standard & Poor is neither standard nor poor.

    hahahahaha


    by Richard Day on Fri, 06/22/2012 - 4:58pm

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