HSBC, Barclays and RBS among the 15 downgraded global financial institutes

Moody’s downgraded its credit rating on 15 global financial institutions. Among the list are Barclays, HSBC and Royal Bank of Scotland.

Moody’s global banking managing director Greg Bauer states: “All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.”

He further explained: “However, they also engage in other, often market leading business activities that are central to Moody’s assessment of their credit profiles. These activities can provide important ‘shock absorbers’ that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges.”

According to the ratings review, Barclays’ rating went from  A2 to Aa3, HSBC’s rating went down from  Aa3 to Aa2, and RBS’s rating was also cut a notch from A2 to A3.

The Royal Bank of Scotland (RBS) responded: “The group disagrees with Moody’s ratings change, which the group feels is backward-looking and does not give adequate credit for the substantial improvements the group has made to its balance sheet, funding and risk profile.”

Other downgrades include Deutsche Bank, JPMorgan Chase and Bank of America whilst Credit Suisse gets the lowest with three notches.

Moody’s stated that not only do these ratings display credit implications of capital market operations, but also consider the following: 

(i) Size and stability of earnings from non-capital markets.

(ii) Capitalisation.

(iii) Liquidity buffers.

(iv) Exposure to the operating environment in Europe, any record of risk management problems, and risks from exposure to US residential mortgages, commercial real estate or legacy portfolios.

Surely, these low ratings will have an effect on the governments who might be willing to provide less support in the future to those banks that are now having concerns.

Alicia Dizon