Moody's May Cut BofA, Citi, Wells Fargo Ratings

Thursday, 02 Jun 2011 10:30 AM

 

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Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. may be downgraded by Moody’s Investors Service as the rating firm reviews whether the government will limit its support of the largest financial firms.

The banks’ present ratings are based on “uplift from Moody’s systemic support assumptions that were increased during the financial crisis,” the ratings firm said in a statement today. A review by Moody’s will “focus on whether these ratings should be adjusted to remove this unusual uplift and include only pre-crisis levels of government support.”

The banks are considered by investors to be too big to fail after receiving government aid in 2008 to bolster the financial system. Lawmakers have overhauled regulations and passed the Dodd-Frank legislation to avoid a repeat of the bailouts that aided firms including Charlotte, North Carolina-based Bank of America, which received $45 billion in assistance.

“‘The U.S. government’s intent under Dodd-Frank is very clear,” said Moody’s Senior Vice President Sean Jones. “It does not want to bail out even large, systemically important banking groups.”

Bank of America, Citigroup and San Francisco-based Wells Fargo have raised funds from private investors to repay U.S. aid and have been building capital to guard against further declines in housing prices.
BofA’s Liquidity

“We believe that our standalone rating should be higher given the progress that we’ve made to strengthen our balance sheet, improve our capital and liquidity and reduce our risk profile,” said Jerry Dubrowski, a spokesman for Bank of America. Mary Eshet, a spokeswoman for Wells Fargo, didn’t immediately return a message seeking comment. Citigroup’s Jon Diat had no immediate comment.

Moody’s will assess improvements in Bank of America’s and Citigroup’s financial strength, and “this may temper the extent of any ratings downgrades that could result from its review of these firms’ unusual level of systemic support,” the ratings firm said.

Still, Bank of America and New York-based Citigroup “have sizable residential mortgage exposures,” Moody’s said. “Their credit costs could therefore spike if the U.S. economy were to contract again. Further, they continue to face litigation costs related to faulty foreclosure practices.”

Bank of America dropped 10 cents to $11.14 at 10:05 a.m. in New York Stock Exchange composite trading. Citigroup fell 45 cents to $39.20. Both banks had slumped 17 percent this year. Wells Fargo slipped 35 cents to $26.59 and is down 14 percent since Dec. 31.

Bank of New York Mellon Corp. had the outlook on its debt lowered to “negative” from “stable,” Moody’s said. That brings it in line with other financial firms benefiting from the assumption of government support, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley, all based in New York.

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