Moody's is considering downgrades for some of the biggest U.S. banks
The ratings agency is reviewing its rating of the senior and subordinated debt of six major banks due to indications that the federal government would unlikely support failing institutions, it said in a statement Thursday. Changing bank-resolution guidelines may make it more likely that owners of holding company debt would suffer deeper losses in case of bank failures, Moody's said.
Moody's is reviewing its ratings for holding company-level debt at Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley (MS) and Wells Fargo (WFC) for downgrade, it said Thursday. Bank of America (BAC) and Citigroup (NYSE: C) are also under review, with the direction of the change uncertain. Moody's also placed the bank-level subordinated debt of JPMorgan Chase and Wells Fargo on review for downgrade.
Moody's announced last month that Bank of New York Mellon (BK) and State Street (STT) were also under review for a downgrade.
The ratings agency said in March that it would review its ratings of banks' debt as regulators' policies on bank resolution continue to evolve. The reviews reflect the progress the Federal Deposit Insurance Corp. has made in implementing resolution authority enacted by the Dodd-Frank Act, Moody's said.
However, higher capital levels may make investors' losses lighter in case of failure, the ratings agency said.
"The risk of default may be increasing because authorities may be less likely to support a banking group, while losses in the event of default may be decreasing," Robert Young, a Moody's managing director, said.
The ratings of seven of the eight institutions under review currently benefit from assumptions of government support, Moody's said. State Street is the only one that doesn't benefit from the assumption of government backstopping.
In May, Moody's changed its rating for U.S. banks to stable from negative, citing healthier balance sheets and improvements in the economy.