Standard & Poor’s Ratings Services is reassessing the rating outlook of the eight big U.S. banks that it views as highly systemically important, amid its growing belief that governments will be increasingly reluctant to provide extraordinary support to such firms.
S&P announced Tuesday that it is taking various outlook actions on the eight U.S. banks it considers as having high systemic importance to the U.S. financial system. Specifically, it revised the outlook on the non-operating holding company of JPMorgan Chase & Co. to ‘negative’ from ‘stable’.
The rating agency says that the outlook revision on JPMorgan’s holding company to negative reflects “its views on the evolving nature of extraordinary government support.”
In particular, it says, “We believe it is becoming increasingly clear that holding company creditors may not receive extraordinary government support in a crisis.” It says it will review the progress that regulators have made toward creating an orderly liquidation authority, which aims to limit the systemic impact that the failure of a single institution might have on financial markets.
“We may remove the ratings uplift we currently incorporate if we believe that regulators and lawmakers are increasingly likely to ask holding company bondholders to bear losses in the event of a liquidation of a systemically important bank,” it suggests; adding that it currently believes those creditors will be supported to prevent the contagion of a crisis.
In addition to the change on JPMorgan’s outlook, S&P also revised the rating outlooks on the operating companies of Bank of New York Mellon Corp., State Street Corp., and Wells Fargo & Co. to ‘stable’ from ‘negative’, but kept the outlooks for their holding companies at ‘negative’. And, it said its outlooks on Bank of America Corp., Citigroup Inc., The Goldman Sachs Group Inc., and Morgan Stanley, remain ‘negative’, too, amid various company-specific reasons.
While the rating outlooks on the other seven big bank holding companies remain negative, in the past this was because of worries about the U.S. sovereign credit rating. However, yesterday the S&P upgraded the sovereign outlook to stable from negative. Yet, it said today that it’s keeping the banks’ outlooks negative to reflect the possibility that it may no longer incorporate extraordinary government support into the ratings because of the evolving resolution framework.
S&P notes that it continues to believe, however, that support will be provided to the core, highly strategic operating subsidiaries of systemically important institutions.