Tags: Major | bank | ratings | cuts

NYT: Morgan Stanley, BofA, Citigroup Vulnerable to Ratings Cuts

By    |   Monday, 02 April 2012 07:18 AM

Moody’s Investors Service will decide in mid-May whether to cut its ratings for 17 major financial companies, and Morgan Stanley, Bank of America, and Citigroup may be the most vulnerable institutions, according to The New York Times.

The three banks could see their credit ratings cut to Baa2, just two levels above junk and weaker than their main competitors.

Credit ratings are a major issue for big banks, because they are constantly borrowing money and engaging in trades with other financial players. If those players get spooked by a ratings cut, they may be unwilling to lend to or trade with the downgraded bank.

Bank creditworthiness represents “a major focus at Vanguard and at other buy-side companies who do business with Wall Street,” William Thum, a lawyer with the money management colossus, tells The Times.

Some Vanguard funds can’t trade with banks that don’t sport a top credit rating, he says. “We are now in the process of diversifying our list of trading partners by signing up new dealers who appear most likely to maintain relatively high credit ratings.”

But star analyst Dick Bove of Rochdale Securities says banks’ woes have been drastically exaggerated. "These companies are doing extremely well" he tells CNBC.

Earnings have risen for the last 10 quarters and are poised for more gains, he says. Banks are "in the best shape in three decades." Bove has been recommending bank stocks for months.

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Monday, 02 April 2012 07:18 AM
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