Moody's Investors Service on Tuesday lowered its outlooks to "negative" on certain ratings for Bank of America Corp., Citigroup Inc. and Wells Fargo & Co., citing a new law that is expected to reduce the likelihood of government bailouts of banks.
The outlooks on the banks debt and deposit ratings were previously "stable."
In a note to investors, analyst Sean Jones wrote that Wall Street Reform and Consumer Protection Act should result in lower levels of taxpayer support for banks that run into trouble. The new law attempts to strengthen the ability of regulators to supervise and liquidate banks if need be, he wrote.
Jones said that in the near term regulators would continue facing significant obstacles in trying to liquidate global companies without causing economic upheavals, so the current ratings are still appropriate.
However, he said that as the new law is implemented over the next year or two, Moody's "support assumptions" for major banks will likely revert to pre-crisis levels, or even lower.
"Since early 2009, Bank of America, Citigroup, and Wells Fargo's ratings have benefited from an unusual amount of support," Jones noted.
That support resulted in debt and deposit ratings that range from three to five notches higher than that appropriate for the banks' intrinsic financial strength, without the support.
The banks' long-term and short-term ratings, which have not benefited from the assumption of government support, were affirmed and not affected.
Wells Fargo shares rose 48 cents to $28.39 during the regular session. Bank of America shares added 4 cents to close at $14.19 and Citi shares advanced a penny to $4.16.
In a separate action, Moody's placed the ratings of 10 U.S. regional banks under review for possible downgrade.
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