The rating agency said Thursday it has lowered the senior holding company ratings of Morgan Stanley, Goldman Sachs, JPMorgan, and Bank of New York Mellon one notch, based on its latest “views on U.S. government support and standalone bank considerations.”
Additionally, Moody’s confirmed its ratings for Bank of America, Citigroup, State Street, and Wells Fargo.
The move come following Moody’s review of the eight large banks, which all benefit from the agency’s assumption of government support. It says that the rating actions “reflect strengthened U.S. bank resolution tools”, which, in turn, impact its assumptions about the prospect for U.S. government support if a bank runs into trouble.
“We believe that U.S. bank regulators have made substantive progress in establishing a credible framework to resolve a large, failing bank,” said Robert Young, managing director at Moody’s. “Rather than relying on public funds to bail-out one of these institutions, we expect that bank holding company creditors will be bailed-in and thereby shoulder much of the burden to help recapitalize a failing bank.”
While it did not change the support assumptions for bank-level senior debt, Moody’s did remove all uplift from U.S. government support in the ratings for bank holding company debt; it reduced loss severity assumptions for bank holding company debt; and, reduced uplift for bank-level subordinated debt, it says.
Additionally, it says that it lowered the standalone baseline credit assessments for Bank of New York Mellon and State Street “to reflect the long-term profitability challenges facing these highly-rated custodian banks.” Conversely, it raised the standalone BCAs of both Bank of America N.A. and Citibank N.A. “to reflect positive changes in the banks’ credit profiles including declining legacy exposures and strengthening capital.”
The rating outlooks for all eight bank holding companies and their main operating subsidiaries are stable, it notes.