Mary Altaffer
So far, there doesn't appear to be any big shock over U.S. bank downgrades by Moody's Investors Service. In June, Moody's had put the credit ratings of Citigroup Inc. , Bank of America Corp. and Wells Fargo & Co. under review for a potential downgrade, and followed through on Wednesday: It cut Bank of America's long-term senior debt rating to Baa1 from A2; it cut Wells Fargo to A2 from A1; and for Citigroup, it affirmed the bank's long-term rating but cut the short-term rating.
In afternoon trading, shortly after the announcements, Wells Fargo was up 1.3 per cent, Citigroup was up 0.2 per cent and Bank of America was down 1.8 per cent
The reasons for the lower ratings come from a view that the U.S. government would be less willing to come to their aid in the event of big problems. As Moody's explains in its note on Bank of America:
"The downgrades result from a decrease in the probability that the U.S. government would support the bank, if needed. Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions. However, it is also more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute."
In other words, maybe these banks are no longer too big to fail.
David Berman