Moody’s Investors Service downgraded the debt rating for 15 of the largest international banks on Thursday afternoon. Many of the top U.S. banks were downgraded as well including Bank of America, Citigroup, Goldman Sachs, JPMorgan and Morgan Stanley. Bank of America’s debt rating was cut by 1 notch, while the others suffered two notch downgrades.
These ratings cuts have been expected for the past few months after Moody’s put the banks on credit watch negative. Moody’s said the downgrades were due to the long-term prospects for growth and profitability is falling.
Morgan Stanley could suffer the most as downgrades on its senior debt could cost the company between $868 million and $7.2 billion in additional collateral and payments on its derivatives contracts.
Investors have largely ignored the credit downgrades with some believing it was already priced in. Plus many believe these credit agencies have been too late in showing warning signs about the global economy.
“The problem is the timing. They’re just too late, and by the time they get published the markets have already reacted, and the only people left to react are the big funds who are linked to these things,” Ralph Silva, director at Silva Research Network, told CNBC. “These industries were developed in the 1950s when portfolio decisions were made on a quarterly basis — now they’re made on a quarter-of-a-second basis.”