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Moody's threatens 17 banks with downgrade

Feb 16 2012 10:37 Reuters

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MOODY'S warned on Thursday it may cut the credit ratings of 17 global and 114 European financial institutions, in another sign the impact of the eurozone government debt crisis is spreading throughout the global financial system.

It was reviewing the long-term ratings and standalone credit assessments of a range of banks, Moody’s added. Markets were unaffected by the Moody’s announcement.

“Capital markets firms are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions,” the rating agency said.

It said among 17 banks and securities firms with global capital markets operations, it might cut the long-term credit rating of UBS, Credit Suisse and Morgan Stanley by as many as three notches following the review. It said the guidance was indicative.

Among the banks that might be downgraded by two notches are Barclays, BNP Paribas, Credit Agricole, Deutsche Bank, HSBC Holdings and Goldman Sachs. Bank of America and Nomura were included in those that might be downgraded by one notch.

The US rating agency said its action on 114 financial institutions from 16 European nations reflected the impact of the debt crisis and deteriorating creditworthiness of its governments.

It cited more fragile funding conditions, increased regulatory burdens and a tougher economic environment for its review of banks and securities firms with global reach.

Moody’s salvo follows rounds of downgrades in European sovereign ratings, as the eurozone’s struggle to keep its weakest link Greece afloat has been driving up borrowing costs and straining finances of other nations.

Last Monday, Moody’s cut the ratings of six European nations including Italy, Spain and Portugal and warned it could strip France, Britain and Austria of their top-level triple A grade.

Standard & Poor’s cut France’s and Austria’s top ratings and downgraded seven other eurozone nations last month. It also cut the eurozone’s bailout fund by one notch.

Moody’s on Thursday also downgraded the insurance financial strength ratings (IFSR) by one or two notches of several insurance companies, which it said related to their investment and operating exposures to Spain and Italy.

These included Unipol Assicurazioni SpA, Mapfre Global Risks, Assicurazioni Generali SpA and Allianz SpA. It affirmed the IFSR of Allianz SE, AXA SA , Aviva Plc and their subsidiaries, but cut the outlook on the rating to negative from stable.

Vicious circle

Asian shares and the euro were weaker on Thursday on concerns about another delay in cementing a bailout for Greece. Traders said markets did not not show any specific reaction to the Moody’s announcement.

In its review of European financial institutions, Moody’s said that once completed, the ratings would “fully reflect the currently foreseen adverse credit drivers”.

European banks’ bond holdings of struggling eurozone nations Greece, Portugal, Ireland, Spain and Italy have trapped Europe in a vicious circle.

The falling value of the debt puts pressure on banks, which in turn weighs on lending and economic activity, making it tougher to sustain the growth that governments badly need to shore up their finances.

The biggest single group among the 114 institutions under review were headquartered in Italy, followed by Spain, with more than 20 each. Nine were headquartered in Britain, 10 in France and seven in Germany.

European Union leaders have been trying to put a financial “firewall” around the nations most afflicted by the eurozone debt crisis.

But jittery market sentiment suffered a fresh setback on Wednesday, when several EU sources told Reuters that the eurozone was considering a delay in parts of a second bailout plan for Greece.

Moody’s said that for 99 European financial institutions, the standalone credit assessments have been placed on review for downgrade. For 109 institutions, the long-term debt and deposit ratings have been placed on review for downgrade. For 66 institutions, the short-term ratings have been placed on review for downgrade.
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