Ratings agency Moody's downgraded many of the world's biggest banks Thursday. The credit reviews, which began in February, reflect changing conditions, particularly in Europe, that made its current ratings too high, analysts said.
BANK REACTIONS:
UBS:
"We are pleased that they have acknowledged that we have made significant progress in adapting to changes in the regulatory and capital markets environment and that UBS has a strong capital position and capital targets well above its peers, a healthy balance sheet, and limited exposure to the sovereign debt of European countries rated AA and below. Our liquidity position remains strong, and our funding position is conservative, with sources that are diversified by market, product and currency."
RBC SPOKESWOMAN KATHERINE GAY:
"We remain one of the strongest and one of the highest rates banks in the world across a number of categories. We don't expect any impact on our clients and minimal impact on our business."
MORGAN STANLEY:
"While Moody's revised ratings are better than its initial guidance of up to three notches, we believe the ratings still do not fully reflect the key strategic actions we have taken in recent years. However, their acknowledgment of our long-term partnership with MUFG as well as our industry-leading capital and liquidity highlight some of the transformative steps we have taken. With our de-risked balance sheet, stable sources of funding, diverse business mix and strong leadership team, we are well positioned to deliver for clients and shareholders."
CREDIT SUISSE SPOKESWOMAN VICTORIA HARMON:
"We are better rated than all but two banks."
GOLDMAN SACHS SPOKESMAN DAVID WELLS:
"We believe our strong credit profile and unique mix of attractive, high-return businesses with an institutional client focus will continue to serve our shareholders, creditors and clients well."
CITIGROUP:
"Citi strongly disagrees with Moody's analysis of the banking industry and firmly believes its downgrade of Citi is arbitrary and completely unwarranted. Moody's approach is backward-looking and fails to recognize Citi's transformation over the past several years, the strength and diversity of Citi's franchise, and the substantial improvements in Citi's risk management, capital levels and liquidity."
ROYAL BANK OF SCOTLAND:
"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. Nonetheless, the Group believes the impacts of this downgrade are manageable, bearing in mind its £153 billion liquidity portfolio. The amount of collateral that may have to be posted following this one notch downgrade by Moody's is estimated to be £9 billion as of 31 May 2012. The Group continues to maintain a solid liquidity and funding position. RBS has completed its planned wholesale funding requirements for 2012."
BNP PARIBAS:
"This rating action was anticipated as Moody's placed BNP Paribas on review for possible downgrade of up to two notches on 15 February 2012. This is part of a wider action where Moody's placed a number of European banks and institutions with global market activities on review for possible downgrade."
"BNP Paribas notes that Moody's recognises the strength of its universal bank model and very strong retail and commercial franchises across a variety of product lines and geographies. Nevertheless, BNP Paribas thinks that the following important elements have not been sufficiently taken into consideration by Moody's:"
- "BNP Paribas' deleveraging plan, which is now almost completed, and will allow it to be one of the very few banks with a fully loaded Basel 3 CET1 ratio of 9% at end-2012."
- "Its strong liquidity profile, with 201bn liquid asset reserve immediately available as at 31 March 2012, amounting to roughly 100% of its short-term wholesale funding, and 51bn excess of stable resources against customer funding needs."
"BNP Paribas' very good resilience through the crisis, strong solvency, and consistently cautious risk policy make it one of the most solid banks in the world."
"BNP Paribas is rated AA- by S&P and A+ by Fitch, making it one of the best rated banks according to those well respected rating agencies."
INVESTORS AND ANALYSTS:
MARK GRANT, MANAGING DIRECTOR AT SOUTHWEST SECURITIES INC:
"The biggest surprise is the three-notch downgrade of Credit Suisse, which no one was looking for. In fact, it was Morgan Stanley that was supposed to be downgraded by that amount and Morgan received only two notches of cuts."
"Overall, the cost of funding for banks is going to be higher. It will be more difficult to execute complex trades and you will see counterparty risk allocations curbed. I wouldn't by any bank stocks - or any stocks, for that matter, here. I would buy senior debt of banks because spreads are very wide and that represents good opportunity so long as you stay 'senior' in the capital structure."
BILL SMEAD, CIO AT SMEAD CAPITAL MANAGEMENT:
"We spend all of our time closing barn doors. The animals are already out of the barn."
JOHN BRYNJOLFSSON, MANAGING DIR. OF HEDGE FUND ARMORED WOLF:
"We don't consider this alarming news at all. We are in the midst of a global bank delevering, capital building effort of global financial institutions. With 0% money rates in the US, lowering rates globally, liquidity pumping globally, and capital outside of banks, on sidelines, the question is 'When will it be safe to go back in the water?' Investors have been burned by false starts, and quick trigger fingers too often."
SUSANNA GIBBONS, VICE PRESIDENT, PORTFOLIO MANAGER FOR FIXED INCOME, RBC GLOBAL ASSET MANAGEMENT:
"At first glance it looks a little better than people's worst fears, so that's a positive. Morgan Stanley, I think, was the big question. We were worried about a three-notch downgrade and they were downgraded two notches. It looks like nobody was taken down more than expected so that's good. It was fine and certainly within expectations. It puts some of the worst fears to bed. Now that this is behind us and it's not the worst expected I'd say that's a positive for the market."
ERIC FINE, PORTFOLIO MANAGER AT VAN ECK GLOBAL:
"One of the most anticipated events in the latest market cycle and I think the two notches on Morgan Stanley is less bad than the worst case which was being increasingly discounted. Because this was so anticipated and now effectively over, if there were no broader issues this would most likely be a relief moment. However the so far unresolved European crisis and more broadly the lack of a serious long-term fiscal policy fix in the US will both remain weights on the market."
