Moody's downgrades 15 major banks

Ratings agency locks the door; Horse already receding beyond the horizon

RBS is one of the banks downgraded. Photograph: Getty Images

The credit ratings agency Moody's has downgraded 15 major banks, in move which was largely expected. The banks downgraded include Royal Bank of Scotland, Barclays and HSBC, and overseas, Morgan Stanley, Goldman Sachs and JP Morgan have also been hit.

Credit Suisse was the worst affected bank, dropped by three notches on the scale from Aa2 to A2, but Citigroup, Bank of America and RBS are all nursing their wounds as well, having been dropped to Baa rating (RBS is Baa1, while the other two are one notch lower still at Baa2).

Although the ratings agencies are more respected in their capacity as corporate credit assessers than sovereign ones, this move has had little practical effect. Robert Peston comments that:

Moody's main rationale for all these downgrades. . . is that investment banking is a riskier business than many might have thought a few years ago. Really? Some would certainly say that is a statement of the egregiously bloomin' obvious.

The result of Moody's stating the obvious has been little change in the cost of borrowing for most of the banks. Indeed, some of the news was basically positive. The fact that Morgan Stanley was only downgraded two notches, rather than the three which had been expected and costed in, meant that shares rallied almost five per cent following the news, and credit default swaps (insurance against institutions going bust) tied to Goldman Sachs and Bank of America improved for similar reasons.

Gerard Cassidy, a bank equity analyst with RBC Capital Markets, told Businessweek:

American banks are stronger today than they were three years ago. . . Yes, their ratings are lower, but is Citi tomorrow going to have to pay an extra 50 basis points for commercial paper? I don’t think so.

The door is firmly locked; sadly, the horse bolted in 2009.

The full cuts are as follows:

Bank of America, N.A.

Long-term deposit rating to A3 from A2, outlook stable; Short-term to P-2 from P-1

Barclays Bank plc

Long-term issuer rating to A2 from Aa3, outlook negative; Short-term P-1 affirmed

BNP Paribas

Long-term debt and deposit rating to A2 from Aa3; outlook stable; Short-term P-1 affirmed

Citibank, N.A.

Long-term deposit rating to A3 from A1, outlook stable; Short-term to P-2 from P-1

Credit Agricole S.A.

Long-term debt and deposit rating to A2 from Aa3, outlook negative; Short-term P-1 affirmed

Credit Suisse AG

Long-term deposit and senior debt rating to A1 from Aa1, outlook stable; Short-term P-1 affirmed

Deutsche Bank AG

Long-term deposit rating to A2 from Aa3, outlook stable; Short-term P-1 affirmed

Goldman Sachs Bank USA

Long-term deposit rating to A2 from Aa3, outlook stable; Short-term P-1 affirmed

HSBC Bank plc

Long-term deposit rating to Aa3 from Aa2, outlook negative; Short-term P-1 affirmed

JPMorgan Chase Bank, N.A.

Long-term deposit rating to Aa3 from Aa1, outlook stable; Short-term P-1 affirmed

Morgan Stanley Bank, N.A.

Long-term deposit rating to A3 from A1, outlook stable; Short-term to P-2 from P-1

Royal Bank of Canada

Long-term deposit rating to Aa3 from Aa1, outlook stable; Short-term P-1 affirmed

Royal Bank of Scotland plc

Long-term deposit rating to A3 from A2; outlook negative; Short-term to P-2 from P-1

Societe Generale

Long-term debt and deposit to A2 from A1; outlook stable; Short-term P-1 affirmed

UBS AG

Long-term debt and deposit to A2 from Aa3, outlook stable; Short-term P-1 confirmed.