Ratings agency Standard & Poor's last night downgraded some of the world's largest financial institutions, another blow to an industry that continues to struggle three years after the darkest hours of the financial crisis.
The agency lowered by one notch its long-term credit ratings on some of the biggest and best-known banks in the United States, including Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase.
The action, the result of S&P applying new standards to 37 financial firms around the world, prompted a downgrade of 15 banks. Among the eight largest banks in the United States, only Boston-based State Street was spared.
"We've been doing a lot of deep thinking and this does go back to taking account of lessons learned during the financial crisis," said Craig Parmelee, head of the agency's North American financial institutions practice.
Rating agencies, which were criticized for being too slow to sound the alarms about the 2008 financial crisis, have recently been carrying out an aggressive wave of downgrades. In September, Moody's cut its credit ratings on three large banks: Bank of America, Citigroup and Well's Fargo.
Moody's said the downgrades were warranted because it believed the federal government was less likely to extend a helping hand to ailing banks as it did in the wake of the collapse of the investment bank Lehman Brothers in the fall of 2008.
Yetsreday S&P left 20 other banks unchanged and actually increased the ratings on two Chinese firms, the China Construction Bank and the Bank of China. But for most financial institutions in the US and Europe, it has been tough sledding this year.
In the United States, banks have been battling falling profits as economic woes and new regulations have eaten into profits. Overseas, concerns that European countries like Greece and Italy could default on their own debt payments have sent shockwaves through global markets, deepening the problems of US banks.
"We believe that the industry is at a crossroads and that there are several inflection points and it's too early to tell how each will play out," Jayan Dhru, S&P's head of global financial ratings, said in a video explaining the new criteria.
"With more stringent capital and liquidity requirements and restrictions on higher-risk activities, the profitability of banking is likely to be much lower than it was before the crisis. This may be acceptable from a creditworthiness perspective, but the impact of business models and global growth may be significant."
New York Times
