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Banks brace for likely downgrade

Monday, June 11, 2012 - 02:01

June 11 - U.S. banks have prepared for an expected downgrade by Moodys. But the consequences if and when it happens could trickle down far beyond the banks themselves. Bobbi Rebell reports.

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PLEASE NOTE: THIS EDIT CONTAINS 4:3 MATERIAL It could be the next shoe to drop- though it won't be a surprise. Moody's is expected to downgrade the ratings on a slew of U.S. banks, including Morgan Stanley, Citigroup, Goldman Sachs, JP Morgan, B of A and Wells Fargo. A downgrade could keep some investors on the sidelines. For example money market funds are limited to a certain tier rating. Jim Leonard is a Senior Credit Analyst at Morningstar.com. SOUNDBITE: JIM LEONARD, SENIOR CREDIT ANALYST, MORNINGSTAR.COM (ENGLISH) SAYING: "If these ratings, some of these downgrades were to happen we would see them shying away or not even being able to buy some of the banks." And banks may have to set aside more cash to keep trading. SOUNDBITE: JIM LEONARD, SENIOR CREDIT ANALYST, MORNINGSTAR.COM (ENGLISH) SAYING: "Names like Morgan Stanley have come out and said if we get downgraded to let's say a triple B rating there is an amount of cash that we would have to post up; nothing more different than a margin call for many retail investors. They say listen, if we get downgraded, this is an amount of cash that we would have to post up and this is the amount would be about $5 billion. And we have the money to do that easily." While there is not likely to be any direct impact on consumers, the indirect impact could be significant. SOUNDBITE: JIM LEONARD, SENIOR CREDIT ANALYST, MORNINGSTAR.COM (ENGLISH) SAYING: "The question always becomes is this just one more step in a series of steps where things go bad. We don't expect that it will be. Most of the major players in the market don't, for the U.S. banks, expect that to be the case but that will always be that concern when you see a major set of downgrades that actually come through the market." While the downgrade could bring back fears of the 2008 financial crisis- most experts agree the banks are in a much better shape now. Michael Shaoul is the Chairman of Marketfield Asset Management: SOUNDBITE: MICHAEL SHAOUL, CHAIRMAN, MARKETFIELD ASSET MANAGEMENT (ENGLISH) SAYING: "The Moody's downgrade is technical rather than personal to the banks themselves. It's really a call on potential government intervention in a future financial crisis rather than an actual deterioration in the current credit conditions of the underlying financials. " A decision is expected by the end of the month. Bobbi Rebell, Reuters.

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Banks brace for likely downgrade

Monday, June 11, 2012 - 02:01