Assumed government support in the wake of the US Dodd Frank Act has led Moody’s to conclude its review of eight large US banking groups in a mostly positive light.
Moody's Investors Services acted on the systemic support assumptions incorporated in the ratings of the eight groups as follows: 1) did not change the support assumptions for bank-level senior debt; 2) removed all uplift from US government support in the ratings for bank holding company debt; 3) reduced loss severity assumptions for bank holding company debt; 4) reduced uplift for bank-level subordinated debt.
Moody's lowered the standalone baseline credit assessments (BCA) of BNY Mellon and State Street Bank and Trust, both to a1 from aa3. This reflected “long-term profitability challenges facing these highly-rated custodian banks,” said a statement.
But the rating agency also raised the standalone BCAs of both Bank of America N.A. and Citibank N.A. to baa2 from baa3, to reflect positive changes in the banks' credit profiles including declining legacy exposures and strengthening capital.
Based on Moody's updated views on US government support and standalone bank considerations, Moody's lowered by one notch the senior holding company ratings of Morgan Stanley, Goldman Sachs, J.P. Morgan, and Bank of New York Mellon. Moody's confirmed the senior holding company ratings of Bank of America, Citigroup, State Street, and Wells Fargo.
Following these actions, the rating outlooks are stable for all eight bank holding companies and their main operating subsidiaries.
"We believe that US bank regulators have made substantive progress in establishing a credible framework to resolve a large, failing bank," said Robert Young, managing director.
"Rather than relying on public funds to bail-out one of these institutions, we expect that bank holding company creditors will be bailed-in and thereby shoulder much of the burden to help recapitalise a failing bank."
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