Moody's downgrades banks

[Purron]

Quote from the link from Bloomberg.com below:

"The downgrades leave Citigroup Inc. (C) and Charlotte, North Carolina-based Bank of America Corp. (BAC) as the lowest-rated banks among the 15 at Baa2, two levels above junk."

Credit Suisse Cut 3 Levels as Moody

This is scary stuff. BAC and C two levels above junk? Have we become too accustomed to the shock and awe of this economy? Where's my tin foil hat?

Someone please talk me down off the ledge....

 

[FIRE'd@51]

This was not a surprise and had already been discounted by the market. The fact that Morgan Stanley was cut only two notches rather than three was greeted positively in after-hours trading.

 

[ziggy29]

I'm not a "dirty market timer", even though I confessed to a gut feeling to "get out" on Halloween 2007 when it felt like stocks were optimistically priced relative to what it looked like lay ahead. I confess I'm starting to get that feeling again. it feels like the economy is slowing down again and the banks are facing trouble again... deja vu all over again? Not to mention Europe, especially Greece. Still, I don't see anything nearly as bad as what happened in 2008-09.

 

[Purron]

This was not a surprise and had already been discounted by the market. The fact that Morgan Stanley was cut only two notches rather than three was greeted positively in after-hours trading.

I agree with you and have followed these bank stocks. Still kind of a shock to see this report.

 

[Semiretired2008]

I wonder how much this will affect interest rates (if any)?

 

[pb4uski]

Funny thing is that the banks are in better shape today than they were a year or two ago, so why the downgrade? Seems to me that Moody's is just recalibrating their ratings and has probably overcook the recalibration.

 

[eytonxav]

The thing that is upsetting is that this info seemed to leak out before the market closed. If I didn't know better, these things almost seem like carefully choreographed events designed to exact $s from our pockets while padding others. Also, curious that Goldman advises its clients to short the S&P 500 that afternoon as well. Then we have gentle ben and the fiscal cliff to worry about, let alone europe. Not sure this is quite 2008 again, but feels like last August.

Lets hope for a better jobs report at the end of the month

 

[pb4uski]

The thing that is upsetting is that this info seemed to leak out before the market closed. ....

I don't understand. It has been widely reported that Moody's was reevaluating ratings on the big banks and was likely to downgrade them. Was in the WSJ a few weeks ago.

 

[eytonxav]

I don't understand. It has been widely reported that Moody's was reevaluating ratings on the big banks and was likely to downgrade them. Was in the WSJ a few weeks ago.

I didn't realize that, thanks for pointing that out. Makes me feel a little better I think.

 

[FinanceDude]

I am sure brewer will be along shortly to see his $79.99 tinfoil hat specials..........

 

[Midpack]

Funny thing is that the banks are in better shape today than they were a year or two ago, so why the downgrade? Seems to me that Moody's is just recalibrating their ratings and has probably overcook the recalibration.

Or maybe all the "ratings agencies" are now overcompensating since they were all asleep at the wheel up to 2008 or so. Trying to restore their peerless credibility, good luck with that...

 

[pb4uski]

Or maybe all the "ratings agencies" are now overcompensating since they were all asleep at the wheel up to 2008 or so. Trying to restore their peerless credibility, good luck with that...

That is sort of what I was trying to say but I was being less direct about it

 

[BigNick]

All this ratings stuff shows us is that ratings are only really valid in periods of stability. Say just one bank, BAC or JPM, had been downgraded in 2004; that would have been cause to suspect that there were specific problems. When everyone's in much the same boat, I don't think that the ratings tells us much (and that's without the small matter of these same agencies having rated CDOs as AAA).

The problem is, the inflexible "minimum quality" rules by which fund managers have to work (by law, in many cases, if they're investing public money or pensions) were made in normal times. So a whole bunch of banks just saw their debt move several steps closer to a precipice which might not be real, but will be self-fulfilling when they get there.

 

[Purron]

So a whole bunch of banks just saw their debt move several steps closer to a precipice which might not be real, but will be self-fulfilling when they get there.

What do you mean by "self-fulfilling"?

 

[MooreBonds]

Funny thing is that the banks are in better shape today than they were a year or two ago, so why the downgrade? Seems to me that Moody's is just recalibrating their ratings and has probably overcook the recalibration.

I agree that they are in more sound fiscal shape now vs back then (both balance sheet wise, and in terms of fewer unknowns about the future). I wonder if it's a more deliberately timed delay vs an accidental one? Imagine if, as the carnage was happening in 2009, Citibank and BofA were suddenly taken down to BBB - that would surely have set off an even greater net of uncertainty and disaster.

Although, perhaps the ratings agencies used as a reasoning for the higher ratings in 2009/2010 that the Feds were doing anything and everything in their power to prevent disaster (an implicit political "guarantee", if you will), which helped prop up their ratings back then? Kind of like how, in the heydays of the 90s/early 2000s, the municipal bond insurance companies helped create AAA-rated issues out of B+/A- issuers?

 

[pb4uski]

......Although, perhaps the ratings agencies used as a reasoning for the higher ratings in 2009/2010 that the Feds were doing anything and everything in their power to prevent disaster (an implicit political "guarantee", if you will), which helped prop up their ratings back then? Kind of like how, in the heydays of the 90s/early 2000s, the municipal bond insurance companies helped create AAA-rated issues out of B+/A- issuers?

Probably not. Since the feds let Lehman die, they could well have let any of the other big banks dies as well (and probably would have).

 

[eytonxav]

Big Bank contagion spills over to munis thanks to Moody's

It will be interesting to see the affect today, if any.

PressTV - Moody's downgrades $64bn of US muni debt