Fitch Threatens to Downgrade Big US, European Banks

Friday, 14 Oct 2011 06:54 AM

 

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Fitch Ratings is reviewing its ratings for Bank of America Corp., Morgan Stanley, Goldman Sachs Group Inc. and five European banks, and may downgrade all of them.

The agency placed a host of ratings for the nation's largest bank, the two largest U.S. investment banks and several European counterparts on "ratings watch negative" on Thursday and said it expects to act soon.

Fitch said it mainly is concerned about how increased uncertainty about market and economic conditions will affect Bank of America, the biggest U.S. bank, measured by deposits.

Fitch said the bank remains highly exposed to the volatile U.S. housing market, which is an issue as long as real estate values remain under pressure and the economy appears to be weakening.
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It also is analyzing the Charlotte, N.C.-based bank's risks related to a series of recent lawsuits over the sale of securities backed by soured mortgages, and it's looking at Bank of America's plans for shoring up its capital. Other banks are involved in litigation, but Bank of America was sued for $10 billion by American International Group Inc. in August. Another lawsuit filed last month concerns a total of $57.5 billion in mortgage-backed securities the bank sold to Fannie Mae and Freddie Mac.

After Bank of America reached a deal in another similar lawsuit, Fitch said it kept the bank's ratings steady in a June review. But the new lawsuits — plus ongoing litigation involving many states' attorneys general and other potential legal issues — have raised new concerns.

For Morgan Stanley, Fitch says it is concerned about the New York-based firm's business-model shifts, intended to reduce volatility from traditional investment banking and generate more stable fee income through wealth management services.

For Goldman, also based in New York, Fitch's concerns are based on its wholesale funding profile and its reliance on trading revenue.

Fitch also placed on "ratings watch negative" Britain's Barclays Bank PLC, France's BNP Paribas and Societe Generale, Switzerland's Credit Suisse AG and Germany's Deutsche Bank AG.

The ratings agency said its actions were part of a broad assessment of the ratings for the largest banking institutions in the world, and were not related to any specific earnings information. It expects to consult with each institution and review any additional information they provide.

Fitch separately placed a series of other European banks on review and downgraded UBS AG, U.K's Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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