Moody’s has downgraded the credit ratings for notes issued by Goldman Sachs, JP Morgan, Morgan Stanley, and BNY Mellon, citing updated views of government support and issues within the banks themselves.
The agency also lowered the standalone baseline credit assessments of BNY and State Street Bank and Trust.
The ratings outlooks for the firms remain stable.
Moody’s said its new ratings reflect the belief that if a firm’s finances start to head south, support would now likely come from the firm’s creditors, not the government:
“Moody’s view of support probabilities for these firms remains unchanged because we believe the disorderly failure of one of them would create the risk of contagion to the broader financial system and the economy.
“What has changed is the source of this financial support. With the single point of entry receivership (SPE) framework more fully developed, Moody’s believes that if support were to be provided, it would be derived not from a bail-out by the government, but, in most instances, from the bail-in of holding company creditors.
“That is, a systemically important bank would still likely be supported, but the FDIC would largely shift the cost of supporting one of these firms from the public sector to the private sector.”
Basically, the government would impose losses on the bank’s largest creditors to preserve the units most important to fundamental operations.
Moody’s did not discuss the “standalone” issues at Goldman, JPM or Morgan Stanley. It said the downgrade of Bank of New York Mellon and State Street’s baseline credit stemmed from “profitability pressures.”
“Specifically, protracted low interest rates and the challenging global operating environment have exposed vulnerabilities in the trust and custody banks’ business models and revealed the mispricing of their largest custody relationships.”
Moody’s confirmed the senior holding company ratings of Bank of America, Citigroup, State Street, and Wells Fargo.