Moody's Investors Service is expected to release a report today that raises the possibility of a triple-A rating for a U.S. bank.

"As U.S. banks evolve into large, diversified financial institutions, Moody's does not rule out the possibility of an Aaa-rated bank in the U.S.," said David Fanger, a vice president and credit officer in Moody's banking group, in a draft of a press release to accompany Moody's annual Banking System Outlook.

Higher ratings enable companies to raise capital less expensively, because investors accept lower yields on less risky bonds. J.P. Morgan & Co., the last triple-a rated U.S. banking company, was downgraded in 1995 when it switched to an investment banking strategy.

Moody's rates 72 U.S. banks, including J.P. Morgan (A1), Bank of America Corp. (Aa2), Bank One Corp. (Aa3), Chase Manhattan Corp. (Aa3), Citigroup Inc. (Aa2), First Union Corp. (A1), FleetBoston Financial Corp. (A2), HSBC USA Inc. (A1), SunTrust Banks (A1), and Wells Fargo & Co. (Aa2).

The rating agency is upbeat in spite of the recent slowdown in earnings growth at some banks. Moody's analysts expect the industry's stable and predictable core earnings to continue to provide solid credit protection to bondholders over time.

"Our view of U.S. banks' situation is more positive than those of equity investors and even many fixed income investors," said Sean Jones, a senior vice president at Moody's.

Moody's dismisses the downdraft in the stock market that has sent some bank stocks 50% lower as a reaction to banks' failure to match earnings expectations.

"We don't see the slowdown in earnings performance at some U.S. banks as a credit event," Mr. Jones said.

Mr. Fanger predicted consolidation would continue, allowing big banks to enhance their efficiency.

Moody's also concludes that higher interest rates will not necessarily have an adverse affect on banks. Indeed, the agency says, higher rates are likely to increase the earnings banks make from deposits.

Moody's said the industry's emphasis on consumer banking has made it stronger, noting that seven of the 10 largest banks derive the majority of their earnings from retail, rather than wholesale, banking.

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