S&P Bank Downgrades No Match for Bernake’s Bazooka

+1.17%
Upside
94.16
Market
95.26
Trefis
MS: Morgan Stanley logo
MS
Morgan Stanley

It almost looks like the global credit rating agencies have stepped up their game on a new front – one in which each of them is trying their best to sink global markets by announcing ratings cuts in the middle of a debt crisis. Only that would explain Standard & Poor’s (S&P) Ratings Services’ decision to change its rating criteria for banks in the middle of extremely messy market conditions – which led to the subsequent downgrade for 15 banks, including 6 global banking giants. [1] Morgan Stanley (NYSE:MS) and Bank of America (NYSE:BAC) saw their share prices sink by more than 3% over trading yesterday after S&P downgraded them one notch to an ‘A-‘ rating. Goldman Sachs (NYSE: GS) and JPMorgan Chase (NYSE:JPM) also saw 2% declines in their value owing to a rating downgrade. Citigroup (NYSE:C) emerged as the only bank that did not suffer at Wall Street after a rating cut – largely because of its move to immediately and publicly oppose the downgrade.

See our full analysis for  Morgan StanleyBank of America

The series of downgrades, and threats of downgrades, issued by S&P, Moody and Fitch over the last few months are now beginning to look more like an attempt by one to outdo the other, rather than portraying prevalent economic condition. Nothing else seems to justify the really bad timing for S&P to revise rating criteria which has been drawing severe criticism since the global economic downturn of 2008.

Relevant Articles
  1. Trailing S&P500 By 31% Since The Start Of 2023, Will Morgan Stanley Stock Close The Gap?
  2. Up 10% In The Last One Month, What’s Next For Morgan Stanley Stock?
  3. Where Is Morgan Stanley Stock headed?
  4. What To Expect From Morgan Stanley Stock?
  5. What To Expect From Morgan Stanley Stock?
  6. What To Expect From Morgan Stanley Stock?

S&P’s rating for banks have drawn considerably flak over the last 3 years – especially the manner in which it analyzes bank debt – and no doubt the change was overdue. But investors hardly expected the change at a time when the markets are fighting severe pessimism linked to the deteriorating situation in Europe.

Once again the Fed and global central banks have come to the rescue in a coordinated act to shore up confidence in the global banking system.  The central banks of the US, EU, England, Canada, Switzerland and Japan agreed to measures to ensure that financial markets have sufficient liquidity. The main instruments are bilateral swap agreements among major nations so that any country can draw on any currency as needed. In addition the Fed has lowered the price for US dollar swap arrangements.

This has led to a massive rally Wednesday which is erasing some of the psychological damage done by S&P’s downgrades, which weighed on Asian trading.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. BofA, Goldman Sachs, Citigroup Credit Ratings Cut by S&P, Bloomberg, Nov 29 2011 []