17 world, 114 Europe institutions headed for Moody's downgrades

Feb 16, 2012, 6:32 GMT

New York - Switzerland's Credit Suisse Group AG and UBS AG and US-based Morgan Stanley are poised for ratings downgrades of three notches, Moody's Investors Service said as it reviews 17 financial institutions with global operations.

Ten of the institutions are headed for two-notch downgrades as the financial industry is engulfed in the eurozone debt crisis. They included Germany's Deutsche Bank AG; Britain's HSBC Holdings PLC; and US-based Citigroup Inc, Goldman Sachs Group Inc and JPMorgan Chase & Co, Moody's said late Wednesday.

It warned ratings cuts were also likely for 114 European financial institutions in 16 countries. Nine of the 17 global institutions under review are based in Europe.

Its announcement came after it cut the debt ratings Monday of six European countries, including Italy, Spain and Portugal, and changed its outlook on Britain's, France's and Austria's top AAA ratings to 'negative' because of the eurozone debt crisis.

Fellow ratings agency Standard & Poor's already downgraded France's and Austria's top ratings in January and lowered the ratings of seven other eurozone countries, including Italy, Spain and Portugal.

'Rapidly changing risk positions expose these firms to unexpected losses that can overwhelm the resources of even the largest, most diversified groups,' Moody's said in its review of the global banks and securities firms. 'Such challenges caused several issuers to fail, or to avoid failure only upon the receipt of external support, during the 2008 financial crisis.'

New challenges have also emerged for firms with substantial capital markets activities, Moody's said, including more fragile funding conditions, higher credit spreads, increased regulatory burdens, and challenging macroeconomic and market environments.

'These adverse trends have placed acute pressure on these firms' profitability and increased the scope of restructuring required in their core businesses to generate the level of return on equities expected by shareholders,' Moody's said, adding that these factors have 'diminished these firms' longer-term profitability and growth prospects.'

In its review of European institutions, Moody's said that positives for these firms, such as supportive governments and accommodative monetary policies have been overshadowed by the eurozone sovereign debt crisis, the reduced creditworthiness of European governments and the challenges faced by institutions with substantial capital markets activities.

Like the global institutions, the European firms face downgrades of one to three notches.

The countries with the most financial institutions under review are Italy with 24, Spain with 21, France with 10 and Britain with nine.

'The following guidance is indicative only,' Moody's said as the reviews have yet to be completed. 'Moody's believes there is little likelihood of any upward rating pressure for any of the banks covered by today's announcement,' it said.

Downgrades could raise the institutions' borrowing costs and force them to raise collateral.

The other global institutions that face downgrades of two notches are Barclay's PLC, BNP Paribas SA, Credit Agricole SA, Macquarie Group Ltd and Royal Bank of Canada.

Those facing downgrades of one level are Bank of America Corp, Nomura Holdings Inc, Royal Bank of Scotland Group PLC and Societe Generale SA.