* Moody's cut ratings on BofA, Citi, Wells Fargo
* Moody's sees US government less open to too-big-to-fail
* Dodd-Frank seen limiting US ability to intervene
(Adds comments, details on regulations, closing share prices)
By Joe Rauch and David Henry
Sept 21 Moody's Investors Service lowered debt
ratings for Bank of America Corp (BAC.N), Citigroup Inc (C.N)
and Wells Fargo & Co (WFC.N) on Wednesday, saying the U.S.
government is getting less comfortable with bailing out large
The government is "more likely now than during the
financial crisis to allow a large bank to fail should it become
financially troubled," said the rating agency, a unit of
Moody's Corp (MCO.N).
"This is crystallizing the fact we're in a new political
reality," said Jason Ware, equity analyst with Salt Lake
City-based Albion Financial Group.
Moody's decision hit Bank of America hardest, as it
downgraded the long- and short-term debt of the holding company
and long-term deposits at its main banking unit.
The ratings agency downgraded only short-term debt at
Citigroup and limited the Wells' cut to its senior debt and to
deposits at its lead bank.
Bank of America is struggling with billions of dollars of
mortgage losses, litigation and stresses from the need to raise
capital to meet new regulatory obligations.
After Moody's downgrade, the cost to insure $10 million of
Bank of America's debt for 5 years in the credit default swap
market rose 48 basis points to $378,000 per year.
But analysts and investors said the downgrade was likely to
have little immediate impact on Bank of America's business.
"It certainly doesn't look good, but operationally it
shouldn't affect them that much," said Jon Finger, managing
partner of Finger Interests Number One Ltd, a Houston-based
investment firm that owns Bank of America shares.
The risk of contagion from one failing bank to other banks
has "become less acute," Moody's noted, adding the Dodd-Frank
financial reform law of 2010 reduced the ties among
When investment bank Lehman Brothers Holdings Inc
LEHMQ.PK failed in September 2008, its debt and counterparty
obligations created shockwaves throughout the global financial
The banks' ratings could be cut further if pending
provisions in Dodd-Frank designed to stop too-big-to-fail
bailouts are fully implemented, said Sean Jones, senior vice
president in Moody's financial institutions group.
Moody's had signaled it might downgrade the three banks'
ratings in June. [ID:nN02236977]
JPMorgan Chase & Co (JPM.N), which is roughly the same size
by assets as Bank of America, but considered healthier, was not
part of the review.
Bank of America shares closed 7.5 percent down at $6.38 on
the New York Stock Exchange. Citigroup shares were down $1.41,
or about 5.2 percent, at $25.52, and Wells Fargo shares slid 96
cents to $23.71.
Despite the cuts for Bank of America, analysts at
CreditSights Inc, a research service for institutional
investors described the cuts to Wells Fargo ratings as "more
cosmetic" and Citigroup's as "a housekeeping item."
Wells Fargo's holding company senior debt was lowered only
one notch to "A2" from "A1." Citigroup's short-term rating for
the holding company was changed to "Prime-2," which Moody's
noted is typical for companies with the same long-term rating
The holding company's short-term rating had been
exceptionally high because those creditors benefited the most
from government support during the financial crisis, Moody's
Moody's changed only the short-term rating of the Citigroup
holding company and left in place its ratings on the holding
company's long-term debt, as well its short- and long-term
ratings on the main Citibank subsidiary.
Moody's said the long-term outlook on the three banks'
ratings remains negative.
Wells Fargo responded with a statement noting Moody's
actions on some of its obligations reflected a change in the
agency's view of government support, as opposed to a new
opinion of the bank itself.
Bank of America said through a spokesman that the downgrade
was due to forces beyond its control and asserted it has a
healthy liquidity cushion of $400 billion. All of its planned
borrowing needs have been prefunded for the rest of 2011, the
Citigroup said in a statement that Moody's downgrade
affects less than 1 percent of its funding. The decision will
not affect its funding needs, it said.
TOO BIG TO FAIL
Moody's announcement is a victory for supporters of the
2010 Dodd-Frank financial oversight law, who have argued that
the legislation ends the government's ability to bail out
Representative Barney Frank, one of the law's two primary
authors, and former Federal Deposit Insurance Corp Chairman
Sheila Bair have been most outspoken in arguing the only way a
bailout could occur is for Congress to change the law.
"I can't comment on the absolute value of Moody's ratings,
but I am pleased that the rating agency recognizes that such
large institutions are not 'too big to fail,'" Frank said in a
(Reporting by Joe Rauch in Charlotte, North Carolina and
David Henry in New York; additional reporting by Jon Stempel in
New York and David Clarke in Washington; editing by Andre
Grenon and Maureen Bavdek)