Moody’s has downgraded the credit ratings of three U.S. banks – Bank of America Corp., Wells Fargo & Co. and Citigroup Inc.
Bank of America and Wells Fargo had their long-term credit ratings downgraded. Citigroup’s long-term rating was upheld, but Moody’s cut its short-term rating.
The overarching reason for the downgrades? "The probability of government support for the banks is less now than during the financial crisis," said David Fanger, senior vice president at Moody's, told The Associated Press. Since the financial crisis, Congress has passed the Dodd-Frank Act and other reforms to give the U.S. government the ability to unwind giant banks instead of propping them up, CNNMonedy reports.
Bank of America, the biggest U.S. lender by assets, had its long-term senior debt rating cut two levels, to Baa1 from A2, and its short-term debt rating cut two levels, to Prime-2 from Prime-1, Bloomberg Businessweek reports. Moody’s lowered Wells Fargo’s long-term senior debt rating one level to A2 from A1. Citigroup’s long-term rating remained at A3 and its short-term credit rating fell from Prime 2 from Prime 1.
All three banks denied the downgrades reflected the health of their companies.
According to Reuters:
Wells Fargo responded with a statement noting Moody's actions on some of its obligations reflected a change in the agency's view of government support, as opposed to a new opinion of the bank itself.
Bank of America said through a spokesman that the downgrade was due to forces beyond its control and asserted it has a healthy liquidity cushion of $400 billion. All of its planned borrowing needs have been prefunded for the rest of 2011, the spokesman said.
Citigroup said in a statement that Moody's downgrade affects less than 1 percent of its funding. The decision will not affect its funding needs, it said.
Downgrades typically lead to higher borrowing costs for issuers of debt like banks because investors want more interest if they're taking a bigger risk, the AP notes.