Wall Street’s day of reckoning is upon it.
The credit rating of Swiss banking giant Credit Suisse was cut three notches and 14 other banks’ ratings were lowered as part of a review of the financial sector.
The downgrades by Moody’s Investors Service, in the works for several months, may force banks, including Citigroup, Bank of America and Morgan Stanley, to pay more to borrow money and could cut into profits.
“All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities,” said Moody’s Managing Director Greg Bauer in a statement accompanying the agency’s 25-page report.
Morgan Stanley, which had been one of the financial firms expected to be hit with a three-notch downgrade — the largest Moody’s said it would undertake — suffered just a two-level cut of its unsecured debt rating, to Baa1 from A2.
Morgan Stanley CEO James Gorman had petitioned doggedly to get the ratings firm to give it extra credit for moves it had made to bolster its liquidity and stabilize its business — including its relationship with large Japanese bank Mitsubishi UFJ, which owns a 22 percent stake in the bank.
That said, Morgan Stanley still bristled at Moody’s action.
“We believe the ratings still do not fully reflect the key strategic actions we have taken in recent years,” a Morgan Stanley spokeswoman said.
BofA’s long-term debt rating dropped one peg, from Baa1 to Baa2, while, Barclays Capital, Citigroup and JPMorgan Chase saw two-notch downgrades.
Banks were largely irked at the moves and blasted the agency.
“Moody’s approach [to ratings] is backward-looking and fails to recognize Citi’s transformation over the past several years,” the bank said.
Still, most believe that the moves made yesterday by the firm won’t necessarily have a significant impact on the industry since the cuts have been under review for months.
“These cuts have been baked into the market for months,” said Nancy Bush, financial analyst at SNL Financial.
For Credit Suisse, run by American-born Brady Dougan, the three-notch downgrade of its senior debt, to A1 from Aa1, was a big blow to the bank chief.
The Swiss central bank recently spotlighted Credit Suisse as an institution that needs to raise capital faster amid European fiscal concerns.
Banking stocks, battered over the past several weeks, rose in after-hours trading.
Morgan Stanley shares gained 3.4 percent, while BofA, JPMorgan and Citi each gained about 1 percent.
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