Home >> News >> Data >> Dodd-Frank Cheered, Jeered, as Moody’s Downgrades Big Banks
Print This Post Print This Post

Dodd-Frank Cheered, Jeered, as Moody’s Downgrades Big Banks

*_Update: Data reflecting shares for Bank of America, Citigroup, and Wells Fargo have been included._*

In a surprise move, ratings agency ""Moody's Investors Service"":http://www.moodys.com/ slashed credit ratings for mortgage giants ""Bank of America"":https://www.bankofamerica.com/, ""Citigroup"":http://www.citigroup.com/citi/homepage/, and ""Wells Fargo"":https://www.wellsfargo.com/ Wednesday afternoon, citing concerns that the federal government may not rush to pick up their remains and bail out the institutions in another liquidity crisis. Critics and advocates of the Dodd-Frank Act used the downgrades to alternately justify the legislation or undermine it in the national square.


Moody's issued downgrades for the long-term and short-term debt currently held by each company. The agency slapped the long-term debt for Bank of America with a Baa1 rating, down from A2, slashing ratings for its short-term debt from Prime-1 to Prime-2.

The agency left unscathed Citigroup's long-term debt, which retained A3 and A1 long-term ratings. Meanwhile, short-term debt for the mortgage company underwent a hack-and-slash move, with downgrades hacking a Prime-1 rating down to Prime-2.

Wells Fargo bore witness to downgrades for its long-term debt, the ratings for which fell from A1 to A2, even while Moody's said that the outlook for its long-term senior ratings remain negative.

""Celia Chen"":http://www.imn.org/pages/biography.cfm?personid=30DE66589034, a national research director and housing specialist with Moody's, could not be immediately reached for comment.


Writing in the note for Bank of America, Moody's signaled that it believes ""the government is likely to continue to provide some level of support to systemically important financial institutions. However, it is also more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute.""

Moody's said that the ""downgrades do not reflect a weakening of the intrinsic credit quality"" of Bank of America's credit quality.

""CNN"":http://money.cnn.com/2011/09/21/news/economy/dodd_frank_moodys/ quoted ""Rep. Barney Frank"":http://www.house.gov/frank/ (D-Massachusetts) as saying, ""I am glad that Moody's recognizes that such large institutions are not ├â┬ó├óÔÇÜ┬¼├ï┼ôtoo big to fail.'""

A spokesperson for Bank of America shrugs off the downgrade, explaining that ""Moody's decision to downgrade our credit rating is based on factors external to Bank of America ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô their conclusion that the Dodd-Frank legislation will make the U.S. government less likely to support financial institutions in a crisis, and a possible further deterioration of the economy.""

The spokesperson went on to say that ""Moody's concludes that we have ample resources to absorb the additional losses we are likely to experience on these exposures.""

Speaking with _MReport_, Bank of America points to a handful of measures it has taken to shore up liquidity and draw down risk-weighted assets, which it claims to have nearly doubled to $402 billion last June and reduced by some 11 percent.

The downgrades arrive amid a slew of credit-slashing measures by other ratings agencies and bad times for the nation's largest mortgage lenders. Bank of America in particular continues to fend off suits from rival banks over faulty mortgage-backed securities.

More recently it joined 16 other defendants in suits by the ""Federal Housing Finance Agency"":http://www.fhfa.gov/, which ""launched litigation"":https://themreport.com/articles/fhfa-may-sue-mortgage-giants-over-mbs-losses-2011-09-02 in early September to recover losses responsible for sending ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=home and ""Freddie Mac"":http://www.freddiemac.com/ into federal conservatorship.

Stocks fell for the three banks Wednesday. ""_The Huffington Post_"":http://www.huffingtonpost.com/2011/09/21/moodys-downgrades-bofas-credit-rating_n_974077.html recorded drops in shares for Bank of America, Citigroup, and Wells Fargo, which ended the day at $6.69, $26.89, $24.92, respectively.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.

Check Also

Survey: Homeownership Remains Elusive for Baby Boomer Renters

A recent look into housing affordability by NeighborWorks America has found that three in five long-term baby boomer renters feel homeownership remains unattainable.