Moody’s lowers credit ratings of major banks
Associated Press
NEW YORK
Moody’s Investors Service has lowered the credit ratings on some of the world’s biggest banks, including Bank of America, JPMorgan Chase and Goldman Sachs, reflecting concern over their exposure to the violent swings in global financial markets.
The downgrades late Thursday ultimately are a measure of Moody’s view on the ability of the banks to repay their debts. The ratings agency also cut its ratings on Barclays, Deutsche Bank and HSBC, some of the largest banks in Europe, a region fighting to contain a government debt crisis.
The banks “have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities,” Moody’s global banking managing director Greg Bauer said in a statement outlining the rationale for the downgrades.
The behemoth banks are all major players in the global stock and bond markets, which have become extremely volatile. Critics such as former U.S. Federal Reserve Chairman Paul Volcker argue that the stability of the financial system is threatened when banks’ profits rely on proprietary trading desks that make high-risk bets on derivatives and other opaque financial instruments. Rich profits can be made from such trades, but the losses also can be huge.
JPMorgan said last month it suffered a $2 billion trading loss related to a hedging strategy.
Analysts said the lure of larger profits from riskier, highly leveraged trading may prove too tempting compared with traditional banking such as loans for housing or small businesses.