Thursday, February 16, 2012

Moody's May Cut Credit Ratings of 17 Global, 114 European Financial Entities

Moody's warned today it may cut the credit ratings of 17 global and 114 European financial institutions in another indicator the impact of the euro-zone government debt crisis having a global impact on financial institutions around the globe. Fortunately, the news did not cause tremors in global markets.

The credit rating agency intimated that globally, it might cut the long-term credit rating of UBS, Credit Suisse and Morgan Stanley by as much as three notches following the review. Among the banks that might be downgraded by two notches include Barclays, BNP Paribas, Credit Agricole, Deutsche Bank, HSBC Holdings, and Goldman Sachs. Bank of America and Nomura were included in those that might be downgraded by one notch.

COMMENT: Last Monday, Moody's cut the ratings of six European nations including Italy, Spain and Portugal and warned it could strip France, Britain and Austria of their top-level AAA grade. Standard & Poor's cut France's and Austria's top ratings and downgraded seven other euro zone nations last month.

European banks' bond holdings of struggling euro-zone nations such as Greece, Portugal, Ireland, Spain and Italy have trapped Europe in a financial vice.

The biggest single group among the 114 institutions under review were headquartered in Italy, followed by Spain, with more than twenty each. Nine were headquartered in Britain, ten in France and seven in Germany.

Unfortunately, institutional credit reductions also have real impact on the lives of consumers who live in the affected countries. In many case, the cost of credit will go up, placing a further squeeze on the availability of money. Additionally, for credit-card issuers, interest rates could climb even further.

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