Moody's Adjusts Ratings On Raft Of International Banking Groups

Tom Burroughes

1 June 2015

Moody’s Investors Service has raised and cut the ratings on a swathe of US, European and other international investment banks after the organisation examined regulatory changes that are designed to make it easier for firms to deal with crises.

The changes, which have seen adjustments to ratings of firms such as Morgan Stanley, HSBC, Credit Suisse and Barclays, are of significance because investment banks are often providers of products and services that wealth managers use – and counterparty risk can be an important factor to watch, as demonstrated by the 2008 financial market crisis.

The following global investment banks were covered by the Moody’s review: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Royal Bank of Scotland, Societe Generale, and UBS.

Among the changes, Moody’s increased Morgan Stanley’s long-term issuer rating by two steps and increased by one notch the grades for three other investment banks’ holding companies.

Holding company grades on Bank of America, Citigroup and Goldman Sachs rose by one level. Holding company ratings fell on Barclays, HSBC, Credit Suisse and Royal Bank of Scotland.

“The new methodology includes a number of elements that Moody's has developed to help accurately predict bank failures and determine how each creditor class is likely to be treated when a bank fails and enters resolution. These new elements capture insights gained from the crisis and the fundamental shift in the banking industry and its regulation,” the organisation said in a statement late last week.

Moody's said its rating actions reflected the banks' specific macro profiles; their core financial ratios; qualitative adjustments made owing to organisational complexity and any balance sheet opacity; the protections offered to depositors and senior creditors in the US, EU and Switzerland as assessed by its "advanced loss given failure" analysis; and the likelihood of government support for the operating companies of most of these banking groups, as well as the low likelihood of such support for their holding companies.