| NEW YORK
NEW YORK Aug 22 Moody's Investors Service said
it might cut the credit ratings of major U.S. bank holding
companies, including JPMorgan Chase & Co and Goldman
Sachs Group Inc, citing reduced chances that the
government will fully bail out bond investors if the companies
run into financial distress.
The announcement shows that regulators are making progress
toward convincing financial markets that big banks may not be
too big to fail.
Moody's said in the announcement that it may also downgrade
bonds of Wells Fargo & Co, and Morgan Stanley.
The bonds of Bank of America Corp and Citigroup Inc
may be downgraded for the same reasons, but they may also
be upgraded because the banks' operations are improving.
Ratings downgrades can increase a bank's borrowing costs and
force it to post more collateral in derivative trades, weighing
on its profitability and draining its cash.
Over the last year, regulators have proposed forcing debt
investors to rescue tottering banks, instead of taxpayers - when
a bank starts to falter, some of its debt would be turned into
equity under the proposed rules. Regulators at the Federal
Deposit Insurance Corp and the Federal Reserve are expected this
fall to announce minimum amounts of bond financing for bank
holding companies to ensure the so-called resolution plans would
With bondholders potentially bearing more of the burden of
rescuing banks, the banks' debt may be less creditworthy,
Moody's said. Two more banks, Bank of New York Mellon Corp
and State Street Corp, had already been placed
under review for downgrade by Moody's because of its
reassessment of likely government support for bondholders.
The ratings agency generally announces results of its formal
reviews of ratings within 90 days.
Moody's added that even if the proposed new rules increase
the chance of banks defaulting, they may also decrease the
losses to investors when the bank defaults.
A clear plan for handling tottering banks means that the
companies could get back on their feet faster and lose less
business, making them better able to ultimate repay creditors,
Moody's senior vice president David Fanger said in an interview.