NEW YORK - Moody's Investors Service may lower the ratings of some of the world's largest banks, as well as those of some securities firms, because their long-term prospects for profitability and growth are shrinking.
The ratings agency said that it is concerned that banks with significant capital market activities are dealing with challenges such as widening credit spreads, delicate funding conditions and increased regulatory requirements and restrictions. Some of the risks facing banks have been mitigated by increased regulatory capital and liquidity requirements, but they have not gone away completely, Moody's said.
The banks whose long-term ratings are under review for downgrade include Citigroup, Bank of America, Goldman Sachs, JPMorgan Chase, the Royal Bank of Canada and Morgan Stanley.
Moody's also extended ongoing reviews for downgrades on 11 companies, which include Credit Suisse, Macquarie, Nomura, UBS, Barclays, BNP Paribas, Credit Agricole, Deutsche Bank, HSBC, Royal Bank of Scotland and Societe Generale. Nine of these institutions are among the 114 European banks that Moody's is reviewing ratings for. The European banks are located in 16 countries, with the largest number - 24 - headquartered in Italy. That is followed by Spain, which has 21 banks on the list.
The announcement of the potential downgrades comes just days after Moody's said that it was cutting the ratings of Italy, Portugal and Spain because of uncertainty over the eurozone's ability to enact reforms necessary to dig out of its debt crisis and Europe's weakening economy. France, Britain and Austria kept their top credit scores, but their outlooks were lowered to "negative" from "stable."
Moody's is not the first rating agency to take such action, with Standard & Poor's stripping France and Austria of their top-notch ratings in January.
A country's credit rating is meant to signal to investors how good a bet it is, while the outlook indicates which direction the agency believes the rating is headed in the next year and a half.
Moody's said its review will concentrate on the parent companies and major operating companies of the 17 banks and securities firms. The agency said it will address separately any subsidiaries that might be impacted by the potential weakening of their parent company's credit profile.
