New York, February 15, 2012 -- Moody's Investors Service has announced a review of 17 banks and securities
firms with global capital markets operations. Underpinning this
review is Moody's view that these firms face challenges that are
not fully captured in their current ratings. Capital markets firms
are confronting evolving challenges, such as more fragile funding
conditions, wider credit spreads, increased regulatory burdens
and more difficult operating conditions. These difficulties,
together with inherent vulnerabilities such as confidence-sensitivity,
interconnectedness, and opacity of risk, have diminished the
longer term profitability and growth prospects of these firms.
Nine of the 17 banks and securities firms included in Moody's review
are headquartered in Europe and are also affected by other adverse drivers
identified in a separate announcement on European banks, titled
"Moody's Reviews Ratings for European Banks" http://www.moodys.com/research/Moodys-Reviews-Ratings-for-European-Banks--PR_237914,
published earlier today. All relevant drivers for each firm will
be considered together.
Specifically, Moody's has taken the following actions with
regard to the long-term ratings and standalone credit assessments
of the 17 global banks and securities firms:
- For 6 firms, placed long-term ratings on review
for downgrade
- For 4 firms, extended reviews for downgrade that had been
announced prior to today
- For 7 firms, extended reviews for downgrade initiated with
today's earlier announcement on European banks
Moody's has also taken a range of actions on the short-term
ratings of these 17 firms, as detailed below.
The rationale behind the review is discussed below and in a report titled
"Challenges for Firms with Global Capital Markets Operations:
Moody's Rating Reviews and Rationale," published today.
Today's announcement also follows the publication on 19 January
2012 of a report titled "Why Global Bank Ratings Are Likely to Decline
in 2012."
An overview of affected firms follows. For a full list of affected
ratings for European-based global banks and securities firms included
in this review, please see the press release titled "Moody's
Reviews Ratings for European Banks" http://www.moodys.com/research/Moodys-Reviews-Ratings-for-European-Banks--PR_237914, published today
which contains a link to a ratings list. For a full list of affected
ratings for non-European issuers included in this review,
please see http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_139804.
WHICH FIRMS ARE AFFECTED
Note: Long-term rating reviews generally apply to the holding
and major operating entities of these firms, except for HSBC,
where the review applies only to the holding company, although its
European operating company is affected by today's announcement on
European banks.
LONG-TERM RATINGS AND STANDALONE CREDIT ASSESSMENTS-- PLACED
UNDER REVIEW
Bank of America
Citigroup
Goldman Sachs
JPMorgan Chase
Morgan Stanley
Royal Bank of Canada
LONG-TERM RATINGS AND STANDALONE CREDIT ASSESSMENTS -- REVIEW
INITIATED WITH TODAY'S EARLIER ANNOUNCEMENT ON EUROPEAN BANKS
Barclays
BNP Paribas
Credit Agricole
Deutsche Bank
HSBC (see note above)
Royal Bank of Scotland
Societe Generale
LONG-TERM RATINGS AND STANDALONE CREDIT ASSESSMENTS -- EXTENSION
OF REVIEWS ANNOUNCED PRIOR TO TODAY
Credit Suisse
Macquarie
Nomura
UBS
SHORT-TERM RATINGS
Note: The list below details where short-term rating reviews
apply to holding company level ratings (and, where applicable,
holding company guaranteed short-term ratings), to operating
company level ratings, and to all short-term ratings,
and where short-term ratings have been affirmed.
SHORT-TERM RATINGS -- PLACED ON REVIEW
Bank of America (operating company level only)
Citigroup (operating company level only)
Goldman Sachs (holding company level only)
Morgan Stanley (all short-term ratings)
SHORT-TERM RATINGS -- REVIEW INITIATED WITH TODAY'S
EARLIER ANNOUNCEMENT ON EUROPEAN BANKS
Barclays plc (holding company level only)
Royal Bank of Scotland (operating company level only)
UBS (all short-term ratings)
SHORT-TERM RATINGS -- PLACED ON REVIEW PRIOR TO TODAY,
REVIEW EXTENDED
Nomura (all short-term ratings)
Macquarie (all short-term ratings)
SHORT-TERM RATINGS AFFIRMED
Bank of America (holding company level only)
Citigroup (holding company level only)
Goldman Sachs (operating company level only)
JPMorgan Chase (all short-term ratings)
Royal Bank of Canada (all short-term ratings)
SHORT-TERM RATINGS AFFIRMED WITH TODAY'S EARLIER ANNOUNCEMENT
ON EUROPEAN BANKS
Barclays Bank (operating company level only)
BNP Paribas (all short-term ratings)
Credit Agricole (all short-term ratings)
Credit Suisse Group (all short-term ratings)
Deutsche Bank (all short-term ratings)
HSBC (all short-term ratings)
Royal Bank of Scotland (holding company level only)
Societe Generale (all short-term ratings)
RATINGS RATIONALE
During its review Moody's will consider the structural vulnerabilities
in the business models of global investment banks, which include
the confidence-sensitivity of customers and funding counterparties,
risk-management and governance challenges, as well as a high
degree of interconnectedness and opacity. In addition, rapidly
changing risk positions expose these firms to unexpected losses that can
overwhelm the resources of even the largest, most diversified groups.
Such challenges caused several issuers to fail, or to avoid failure
only upon the receipt of external support, during the 2008 financial
crisis.
Additional challenges have now emerged for banks with significant capital
markets activities; these include more fragile funding conditions,
higher credit spreads, increased regulatory burdens and very challenging
macroeconomic and market environments. Some of these risks have
been partly mitigated by changes to business models, and higher
regulatory capital and liquidity requirements, but they have not
been eliminated. Furthermore, these adverse trends have placed
acute pressure on these firms' profitability and increased the scope
of restructuring required in their core businesses to generate the level
of return on equities expected by shareholders.
The combination of changed operating conditions and increased regulatory
requirements and restrictions has diminished these firms' longer-term
profitability and growth prospects. While we had initially expected
their standalone credit profiles to recover once the acute phase of the
crisis had passed, we now view these challenges as structural features
of global investment banks. Our credit analysis is reflecting these
challenges through greater emphasis on certain key rating factors in our
methodologies, as discussed in more detail in the report "Challenges
for Firms with Global Capital Markets Operations: Moody's
Rating Reviews and Rationale," published today.
EXPECTED OUTCOME OF REVIEWS
- STANDALONE CREDIT ASSESSMENTS
Today, the average standalone credit assessment (that is,
an entity's credit worth absent external support assumptions) for
the 17 affected firms is approximately A2 at the operating company level.
This average will likely move into the Baa-range.
- LONG-TERM RATINGS
In most cases, where a firm's standalone credit assessment
is lowered, its long-term debt ratings will be lowered by
the same number of notches. Debt ratings may decline slightly less
for some issuers, because the impact of weakening standalone creditworthiness
on default risk for bondholders can be dampened by the likelihood of support
from a strong source, such as a national government. The
list below shows Moody's current estimate of the number of notches
by which each of the 17 global investment banks' long-term
ratings may be lowered.
While Moody's recognizes the clear intent of governments around
the world to reduce support for creditors, the policy framework
in many countries remains supportive for now, not least because
of the painful economic repercussions of large, disorderly bank
failures and the difficulty of resolving complex, interconnected
institutions such as global investment banks.
-SHORT-TERM RATINGS
The short-term ratings of some large capital markets firms may
decline as a result of a decline in their long-term ratings.
For all entities where Moody's sees a risk of this occurring in
the context of the review announced today, the issuers' short-term
ratings have been placed on review for downgrade, or existing reviews
have been extended. Moody's has affirmed the short-term
ratings of all the other firms.
Moody's generally derives an issuer's short-term ratings
from its long-term ratings, as explained in more detail in
the rating methodology "Short-Term Prime Ratings,"
22 June 2010 (LINK: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_125609).
Prime-1 (P-1) ratings are typically assigned to issuers
with long-term ratings of A2 and higher. Only in exceptional
cases, where Moody's sees an unusually low risk that an issuer's
credit profile will weaken further (so-called transition risk),
will a P-1 short-term rating be considered for an A3-rated
issuer. However, vulnerability to unexpected losses,
and thus to credit deterioration, is a structural feature of firms
with significant capital markets operations.
OTHER FACTORS CONSIDERED IN REVIEWS
The rating reviews will also consider each firm's exposure to other
adverse trends, such as the difficult operating conditions in Europe,
disrupted financial markets, sovereign stress and the weakening
global growth outlook.
POTENTIAL LONG-TERM RATING IMPACT FOLLOWING REVIEWS:
The following guidance is indicative only. The final rating impact
will be determined during the review.
UP TO 1 NOTCH:
Bank of America
Nomura
Royal Bank of Scotland
Societe Generale
UP TO 2 NOTCHES:
Barclays
BNP Paribas
Citigroup
Credit Agricole
Deutsche Bank
Goldman Sachs
HSBC Holdings
JPMorgan Chase
Macquarie
Royal Bank of Canada
UP TO 3 NOTCHES:
Credit Suisse
Morgan Stanley
UBS
IMPACT ON SUBSIDIARIES WILL BE ASSESSED SEPARATELY
The review announced today will focus on the parent companies and major
operating companies of the 17 affected global banks and securities firms.
Moody's will separately address subsidiaries of these firms that
may be affected by a weakening of the parent's credit profile.
PRINCIPAL METHODOLOGIES
The principal methodologies used in ratings of Goldman Sachs and Morgan
Stanley were Global Securities Industry Methodology published in December
2006, Incorporation of Joint-Default Analysis into Moody's
Bank Ratings: A Refined Methodology, published in March 2007,
and Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated
Debt, published in November 2009.
The principal methodology used in ratings of Nomura was Global Securities
Industry Methodology published in December 2006.
The principal methodologies used in ratings of Macquarie were Global Securities
Industry Methodology published in December 2006, Bank Financial
Strength Ratings: Global Methodology, published in February
2007, Incorporation of Joint-Default Analysis into Moody's
Bank Ratings: A Refined Methodology, published in March 2007,
and Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated
Debt, published in November 2009.
The principal methodologies used in ratings of Citigroup, JPMorgan,
Bank of America and Royal Bank of Canada were Bank Financial Strength
Ratings: Global Methodology, published in February 2007,
Incorporation of Joint-Default Analysis into Moody's Bank Ratings:
A Refined Methodology, published in March 2007, and Moody's
Guidelines for Rating Bank Hybrid Securities and Subordinated Debt,
published in November 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
REGULATORY DISCLOSURES
The ratings of rated entity Nomura Securities Co., Ltd.
were initiated by Moody's and were not requested by this rated entity.
Nomura Securities Co., Ltd. or its agent(s) participated
in the rating process. This rated entity or its agent(s)provided
Moody's access to the books, records and other relevant internal
documents of the rated entity.
The rating has been disclosed to Nomura and its subsidiaries or its designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating for Nomura and its subsidiaries
are the following : parties involved in the ratings, public
information, and confidential and proprietary Moody's Investors
Service information.
Moody's considers the quality of information available on Nomura and its
subsidiaries satisfactory for the purposes of extending this review.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to Nomura or its subsidiaries within the two years preceding
the credit rating action. Please see the special report "Ancillary
or other permissible services provided to entities rated by MIS's
EU credit rating agencies" on the ratings disclosure page on our
website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%)
and for (B) further information regarding certain affiliations that may
exist between directors of MCO and rated entities as well as (C) the names
of entities that hold ratings from MIS that have also publicly reported
to the SEC an ownership interest in MCO of more than 5%.
A member of the board of directors of this rated entity may also be a
member of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the lead analyst, the person
approving the credit rating (who is the same person identified as the
Managing Director on that page) and the office that has issued the credit
rating.
The relevant Releasing Office for each rating is identified under the
Debt/Tranche List section on the Ratings tab of each issuer/entity page
on moodys.com
The person who approved Bank of America, Citigroup, Goldman
Sachs, JP Morgan, Morgan Stanley, Royal Bank of Scotland
credit ratings is Robert Young, MD -- Financial Institutions,
JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653.
The person who approved Macquarie credit ratings is Stephen Long,
MD -- Financial Institutions, JOURNALISTS: (852) 3758
-1350 SUBSCRIBERS: (852) 3551-3077.
The person who approved Nomura credit ratings is Johannes Wassenberg,
MD -- Banking, JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS:
44 20 7772 5454.
David Fanger
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Reviews Ratings for Banks and Securities Firms with Global Capital Markets Operations
