Whoa: Moody's Downgrades 15 U.S. Banks

Kate Hicks

6/21/2012 7:00:00 PM - Kate Hicks

Er...what was that about the private sector doing fine? Moody's just downgraded 15 more U.S. banks, meaning there's fear that they can't repay their debts. As the debt crisis in Europe worsens, and economic growth worldwide continues to slow, this isn't exactly comforting:

Moody's Investors Service lowered the credit ratings of 15 the world's largest banks late Thursday, including Bank of America, JPMorgan Chase and Goldman Sachs, saying their long-term prospects for profitability and growth are shrinking.

The ratings agency said it was especially concerned about banks with significant financial markets businesses because those markets have become so volatile. Some of the largest European banks were also downgraded, including Barclays, Deutsche Bank and HSBC.

The downgrades mean Moody's is more concerned about the ability of the banks to repay their debts. Moody's had said in February that it was considering downgrading the credit ratings of major banks in the U.S. and in Europe.

A downgrade usually means that it becomes more costly for banks to raise money by selling debt. Investors demand higher interest for riskier debt, which is what the downgrades represent. However, with interest rates already at rock-bottom levels, the downgrades may not affect the cost of funding for the banks that much.

Among the banks that were downgraded Thursday:

- Bank of America's debt was downgraded to Baa2 from Baa1. That's just a couple of notches above junk status.

- JPMorgan Chase's debt was downgraded to A2 from Aa3

- Citigroup's to Baa2 from A3

- Morgan Stanley's to Baa1 from A2

- Goldman Sachs's to A3 from A1

- HSBC's to Aa3 from Aa2

- Barclay's to A3 from A1