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Fri June 22, 2012
Markets Offer Muted Reaction To Bank Ratings Dowgrades
Originally published on Fri June 22, 2012 9:14 am
UPDATE at 10:10 a.m. EST:
U.S. stocks open up a day after their second-worst showing of the year, apparently shrugging off the concerns over banks.
Here's our original post:
NPR's Chris Arnold reports this morning on the fallout from Moody's announcement yesterday that it was cutting its rating on 15 big banks in the U.S. and Europe.
Speaking with Morning Edition host Steve Inskeep, Arnold called the downgrade "a repositioning of credit worthiness of almost the entire banking industry."
The credit rating agency Moody's is essentially saying there are three tiers of banks.
The top tier, which includes JPMorgan Chase, HSBC and the Royal Bank of Canada, is in good shape.
The second tier, including Barclays, Deutsche Bank and Goldman Sachs has "ongoing exposure to the troubles in Europe."
The last group, which includes Bank of America, Citigroup and Morgan Stanley, "would be in for the bumpiest ride if things in Europe or some other big shock came along," Arnold says.
Not surprisingly, the banks that were downgraded didn't much like the news from Moody's. The Telegraph has some official reaction here.
According to The Wall Street Journal:
"Investors have been bracing for the downgrades since February, when the Moody's Corp. unit said it would review the ratings of more than 100 banks around the world. U.S. bank stocks rose in after-hours trading Thursday, after Moody's announced the downgrades. The gains followed a broad-based selloff that saw the Dow Jones Industrial Average fall 250.82 points to 12573.57."
It's worth remembering that Moody's and other credit-rating agencies such as Standard & Poor's, "got a black eye for placing high ratings on mortgage bonds that later imploded," according to The New York Times.
The downgrades will lead to higher borrowing for the affected banks, and that's not good news for consumers, the Times notes:
"As bank profits falter, consumers could also be affected. Companies often try to make up for lost revenue by passing costs on to customers.
"In the face of new regulations, banks have raised fees and other sources of income to bolster their business."