Ratings are assigned following 6 June 2018 update to Moody's Banks rating methodology
New York, June 06, 2018 -- Moody's Investors Service has today assigned Counterparty Risk Ratings
to the rated bank subsidiaries and bank branches of eight large US banking
groups: Bank of America Corporation (BAC), The Bank of New
York Mellon Corporation (BNY Mellon), Citigroup Inc. (Citi),
The Goldman Sachs Group, Inc. (GS), JPMorgan Chase
& Co.(JPM), Morgan Stanley (MS), State Street Corporation
(STT), and Wells Fargo & Company (WFC).
Moody's Counterparty Risk Ratings (CRR) are opinions of the ability
of entities to honor the uncollateralized portion of non-debt counterparty
financial liabilities (CRR liabilities) and also reflect the expected
financial losses in the event such liabilities are not honored.
CRR liabilities typically relate to transactions with unrelated parties.
Examples of CRR liabilities include the uncollateralized portion of payables
arising from derivatives transactions and the uncollateralized portion
of liabilities under sale and repurchase agreements. CRRs are not
applicable to funding commitments or other obligations associated with
covered bonds, letters of credit, guarantees, servicer
and trustee obligations, and other similar obligations that arise
from a bank performing its essential operating functions.
RATINGS RATIONALE
In assigning CRRs to the banks and branches subject to this rating action,
Moody's starts with the banks' adjusted Baseline Credit Assessment
(BCA) and uses the agency's existing advanced Loss-Given-Failure
(LGF) approach that takes into account the level of subordination to CRR
liabilities in the bank's balance sheet and assumes a nominal volume of
such liabilities. For these banks, Moody's considers
the likelihood of government support for CRR liabilities to be moderate,
resulting in one additional notch of uplift from their respective adjusted
BCAs, reflecting each groups' high degree of interconnectedness
and systemic importance to the US and global financial system, balanced
by the current US legal restrictions on many forms of government support.
For all eight banking groups, the CRRs assigned are equal to or
higher than the rated bank subsidiaries' and branches' senior
debt ratings. This reflects Moody's view that secured counterparties
to banks typically benefit from greater protections under insolvency laws
and bank resolution regimes than do senior unsecured creditors,
and that this benefit is likely to extend to the unsecured portion of
such secured transactions in most bank resolution regimes. Moody's
believes that in many cases regulators will use their discretion to allow
a bank in resolution to continue to honor its CRR liabilities or to transfer
those liabilities to another party who will honor them, in part
because of the greater complexity of bailing in obligations that fluctuate
with market prices, and also because the regulator will typically
seek to preserve much of the bank's operations as a going concern
in order to maximize the value of the bank in resolution, stabilize
the bank quickly, and avoid contagion within the banking system.
CRR liabilities at these banking groups therefore benefit from the subordination
provided by more junior liabilities, with the extent of the uplift
of the CRR from the adjusted BCA depending on the amount of subordination.
As a result, the CRRs for the rated bank subsidiaries and branches
of six banking groups (BAC, Citi, GS, JPM, MS,
and WFC) are four notches higher than their respective adjusted BCAs and
the CRRs for the rated bank subsidiaries and branches of two banking groups
(BNY and STT) are two notches higher than their respective adjusted BCAs.
Although most if not all of the six banking groups whose CRRs receive
four notches of uplift from their adjusted BCAs are likely to have more
than a nominal volume of CRR liabilities at failure, this has no
impact on the ratings because the significant level of subordination below
the CRR liabilities at each of the six banking groups already provides
the maximum amount of uplift allowed under Moody's rating methodology.
While a decrease in the amount of more junior obligations outstanding
might put downward pressure on the CRRs, this is not expected given
current regulatory requirements for total loss-absorbing capacity
(TLAC) and holding company long-term debt (LTD).
For BNY and STT, Moody's expects the level of subordination
below the CRR liabilities at both firms to be comparatively less significant
than their large bank peers, reflecting the two banks' more
limited need for market funding and their relatively lower regulatory
requirements for TLAC and LTD. These lower requirements result
in more limited subordination and a more modest uplift for each firm's
CRR from their respective adjusted BCAs.
The following ratings were assigned:
Bank of America, N.A., Bank of America,
N.A., London Branch, and Bank of America,
N.A. (Sydney Branch) --
Local currency and foreign currency Long-term Counterparty Risk
Ratings of Aa3
Local currency and foreign currency Short-term Counterparty Risk
Ratings of Prime-1
The Bank of New York Mellon, Bank of New York Mellon Trust Company,
N.A., BNY Mellon Trust of Delaware, BNY Mellon
National Association, The Bank of New York Mellon SA/NV, Bank
of New York Mellon SA/NV (Milan Branch), Bank of New York Mellon
SA/NV (Lux. Branch) --
Local currency and foreign currency Long-term Counterparty Risk
Ratings of Aa2
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-1
Citibank, N.A., Citibank, N.A.,
London Branch, Citibank, N.A. (Sydney Branch),
Citibank Europe plc --
Local currency and foreign currency Long-term Counterparty Risk
Rating of A1
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-1
Goldman Sachs Bank USA and Goldman Sachs International Bank --
Local currency and foreign currency Long-term Counterparty Risk
Rating of Aa3
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-1
JPMorgan Chase Bank, N.A., JPMorgan Chase Bank,
N.A., Toronto Branch, JPMorgan Chase Bank,
N.A., New York Branch, JPMorgan Chase Bank,
N.A., Paris Branch, JPMorgan Chase Bank,
N.A., London Branch, JPMorgan Chase Bank,
N.A., Singapore Branch, Chase Bank USA,
National Association, J.P. Morgan AG --
Local currency and foreign currency Long-term Counterparty Risk
Rating of Aa2
Local currency and foreign currency Short-term Counterparty Risk
Rating of P-1
Morgan Stanley Bank, N.A., Morgan Stanley Bank
International Limited, and Morgan Stanley Bank AG --
Local currency and foreign currency Long-term Counterparty Risk
Rating of Aa3
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-1
State Street Bank and Trust Company --
Local currency and foreign currency Long-term Counterparty Risk
Rating of Aa2
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-1
Wells Fargo Bank, N.A --
Local currency and foreign currency Long-term Counterparty Risk
Rating of Aa1
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-1
What Could Change the Rating Up/Down -- Bank of America
Sustainable profitability above an adjusted return on tangible assets
of 1.0% with lower earnings volatility than similarly rated
peers and without materially reducing its liquidity or capital ratios,
a key component of which will be maintenance of a conservative risk profile
and the absence of major litigation or other sizeable operational risk
charges or control failures, or a significantly reduced size of
capital markets operations could lead to a ratings upgrade.
A significant deterioration in capital or liquidity levels, relative
to peers and targets, a marked increase in risk appetite,
or major litigation or other sizeable operational risk charge or control
failure could lead to a ratings downgrade.
What Could Change the Rating Up/Down -- The Bank of New York Mellon
Upward pressure on BNY Mellon's bank-level BCA and ratings
is not likely absent a lasting improvement in its core profitability and
a stronger capital profile. While BNY Mellon's CRR could
also move upward if Moody's believes the level of subordination
to CRR liabilities in the bank's balance sheet will remain high,
Moody's is not expecting this; instead, Moody's
expects that a resumption of deposit and balance sheet growth combined
with recent and proposed changes to BNY Mellon's Supplementary Leverage
Ratio requirement, as well as an evolving Federal Reserve stress
testing process will lead to a decline in the current levels of subordination
to CRR liabilities over time. If Moody's observes that BNY
Mellon's liability structure is sustained for the long-term,
its CRR rating could increase.
Downward pressure on BNY Mellon's BCA could result from a weaker
capital base or a depressed earnings profile, either from sizable
litigation/compliance costs or from a pronounced drop in revenue,
which Moody's does not anticipate.
What Could Change the Rating Up/Down -- Citigroup
Citigroup's ratings could be upgraded if the firm continues to produce
consistent profitability and maintains its risk appetite and disciplines.
A key credit consideration will be whether management can achieve its
strategic targets without compromising on risk appetite or controls.
Citigroup's ratings could face downward pressure if the bank experiences
a significant deterioration in its capital or liquidity levels or demonstrates
a marked increase in its risk appetite, or were to experience a
sizeable operational risk charge or control failure. The ratings
could also face downward pressure if the bank's profitability declines
sharply due to significantly lower revenues or higher credit or operating
costs.
What Could Change the Rating Up/Down -- Goldman Sachs
Moody's does not expect upward pressure on the ratings of the group's
operating subsidiaries absent a significant reduction in the firm's reliance
on earnings from its capital markets business. The rating outlook
on the operating subsidiaries could return to stable if the firm's loan
growth slows and it also recovers its lost market share in sales and trading
without significantly increasing its market risk. If the outlook
on the operating subsidiaries returns to stable and the level of holding
company debt is sustained at current levels as a proportion of tangible
assets, then the holding company senior debt could be upgraded.
An inability to recover the temporary loss of market share in the sales
and trading businesses, a continuation of above-average loan
growth at the same levels realized in 2017, or any indications of
control or risk management failures, a marked increase in risk appetite
and/or deterioration in leverage or other capital metrics or a decline
in profitability could lead to a ratings downgrade.
What Could Change the Rating Up/Down -- JPMorgan Chase
Upward pressure may develop on JPM's a3 BCA and the associated ratings,
if the firm continues to demonstrate peer-leading and sustainable
profitability even under a more challenging operating environment or if
the firm's reliance on capital markets earnings declines while adapting
a more simplified business model.
Under our advanced LGF framework, upward rating pressure could develop
for holding company senior debt as well as bank-level senior and
subordinated debt if there is a sustained increase in the thickness of
the holding company senior debt stack relative to Moody's LGF loss assumptions.
Downward pressure could develop on the baseline credit assessment in the
event of a marked increase in risk appetite or a major risk control failure.
What Could Change the Rating Up/Down -- Morgan Stanley
A significant reduction in the firm's reliance on earnings from its capital
markets business, or sustainable above-peer profitability,
capital and liquidity ratios accompanied by lower earnings volatility
and the absence of control or risk management failures could lead to a
ratings upgrade.
A significant deterioration in loan credit quality or other evidence of
weaker loan underwriting standards, an increase in illiquid risk
assets, or an increase in portfolio concentrations, or any
deterioration in the firm's liquidity profile, or any control or
risk management failures could lead to a ratings downgrade.
What Could Change the Rating Up/Down -- State Street
Upward movement on State Street's standalone bank-level BCA
and ratings would require a lasting and significant improvement of its
core profitability and/or higher capital ratios. State Street's
CRR could also move upward if the level of subordination to CRR liabilities
in the bank's balance sheet climbs from current levels and remains high.
A material decline in State Street's profitability would be credit
negative. State Street has been exposed to various litigation and
regulatory actions, including actions tied to various misconduct
that surfaced in recent years. Additional legal charges and/or
operational shortcomings that cause a material decline in State Street's
profitability or franchise strength could lead to incremental negative
rating pressure. State Street's CRR could also move downward
if the level of subordination to CRR liabilities in the bank's balance
sheet declines from current levels and remains low.
What Could Change the Rating Up/Down -- Wells Fargo
Regarding Wells Fargo's BCA, the negative outlook, which
is rooted in the bank's corporate governance shortcomings,
signals that upward rating pressure is unlikely. Longer-term,
significantly stronger risk-weighted profitability metrics,
a more robust capital position and the maintenance of effective improvements
in corporate governance could result in positive rating pressure.
With respect to Wells Fargo's BCA, our focus is on the bank's ability
to correct its governance and risk management deficiencies. An
inability to do so would be credit negative. In addition,
any noticeable franchise erosion or an outsized spike in nonperforming
assets would also be viewed negatively.
The principal methodology used in these ratings was Banks published in
June 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
The person who approved Bank of New York Mellon (The), Bank of New
York Mellon SA/NV (The), Bank of New York Mellon SA/NV (Lux.
Branch), Bank of New York Mellon SA/NV (Milan Branch), Bank
of New York Mellon Trust Company, N.A., BNY
Mellon Trust of Delaware, BNY Mellon National Association,
Wells Fargo Bank, N.A., and State Street Bank
and Trust Company credit ratings is M. Celina Vansetti-Hutchins,
MD - Banking, Financial Institutions Group, Journalists:
212 553 0376, Client Service Tel: 212 553 1653. The
person who approved Citibank, N.A., Citibank
Europe plc, Citibank, N.A. (Sydney Branch),
Citibank, N.A., London Branch, JPMorgan
Chase Bank, N.A., Chase Bank USA, National
Association, J.P. Morgan AG, JPMorgan Chase
Bank, N.A., London Branch ., JPMorgan
Chase Bank, N.A., New York Branch, JPMorgan
Chase Bank, N.A., Paris Branch, JPMorgan
Chase Bank, N.A., Singapore Br, JPMorgan
Chase Bank, N.A., Toronto, Bank of America,
N.A, Bank of America, N.A. (Sydney Branch),
Bank of America, N.A., London Branch,
Goldman Sachs Bank USA, Goldman Sachs International Bank,
Morgan Stanley Bank, N.A., Morgan Stanley Bank
AG, and Morgan Stanley Bank International Limited credit ratings
is Ana Arsov, MD - Financial Institutions, Financial
Institutions Group, Journalists Tel: 212 553 0376, Client
Service Tel: 212 553 1653.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
David Fanger
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
