Fitch Ratings has downgraded a variety of its ratings on nine of the largest global banks, citing the challenges facing the sector as a whole amid stressed financial markets.
The rating agency made assorted downgrades on its ratings of Bank of America Corp., Barclays plc, BNP Paribas, Credit Suisse AG, Deutsche Bank AG, Goldman Sachs Group, Inc., Morgan Stanley, and Societe Generale. It also affirmed its ratings on UBS AG, which was already downgraded back in October.
Fitch notes these ratings actions complete its assessment of what it calls the global trading and universal banks (GTUBs), which was carried out in conjunction with a broad review of the ratings for the largest banking institutions in the world.
It says that downgrades to various viability ratings reflects challenges faced by the sector as a whole, rather than negative developments fundamental creditworthiness at specific banks, as it views their business models as “particularly sensitive to the increased challenges the financial markets face.”
Fitch explains that the structural aspects of the firms’ funding, earnings, and leverage, predispose them to vulnerability to market sentiment and confidence, and that the complexity of their business models and exposure to fat tail risk make it more difficult to assess the size of loss that could emerge rapidly from unexpected events.
“Over time market conditions are likely to ease, but Fitch expects market volatility to remain above historical averages and economic growth in developed markets to remain subdued for a prolonged period. This makes many business lines in securities operations more difficult, due to lower activity and higher funding costs,” it says.
Additionally, while increased regulation enhances banks’ creditworthiness generally, it also restricts earnings potential and increases costs, which encourages increasing the scale required to remain efficient and will likely reduce the number of market participants, Fitch suggests.