New York - Moody’s Investors Service may upgrade 214 senior unsecured debt and issuer ratings for banks after regulatory changes made it easier to impose losses on junior creditors. Firms without such a cushion could be downgraded.
The broad review disclosed late on Tuesday in New York stems from methodology changes that Moody’s published on March 16, analysts Greg Bauer and Ana Arsov said in an interview. Some 212 ratings may be cut, in part because the banks lack a large enough cushion to protect senior bondholders, while the potential impact on 25 ratings is uncertain.
The actions were prompted in part by rules that global regulators have been enacting to aid struggling banks in an emergency or resolve those that fail. In many cases, senior bondholders are better protected because the firms have thicker layers of junior securities to bear the brunt of losses, the analysts said.
“It’s somewhat revolutionary actually what the regulators are now able to do, that they have never had the capacity to do,” Bauer said. “The response to that from our perspective and what we built into the methodology is similarly significant and is quite different than what it entailed before, which was much more built around support assumptions.”
Senior unsecured debt ratings for Bank of America, Citigroup, Goldman Sachs Group, and Morgan Stanley are among those in the US under review for an upgrade, according to the New York-based analysts. JPMorgan Chase & Company’s rating is unaffected, as is that for Wells Fargo & Company and Bank of New York Mellon, the analysts said. State Street’s senior unsecured debt rating might be downgraded, they said.
Moody’s expects the majority of the reviews to be concluded by the end of the second quarter, they said.
Bloomberg