|Wall Street Banks Suffer Credit Downgrades|
|by Tom McGregor||Thu, Jun 21, 2012, 07:33 PM|
On Thursday, Moody’s Investors Services lowered the credit ratings of 15 of the world’s biggest banks, which included Bank of America, JPMorgan Chase and Goldman Sachs, contending that their profitability and growth are shrinking.
The Houston Chronicle reports that, “the ratings agency said it was particularly concerned about banks with significant financial markets business because those markets have become so volatile. Some of the largest European banks were also downgraded, including Barclay’s, Deutsche Bank and HSBC.”
The downgrades entails that Moody’s is more worried about the ability of the banks to repay their debts. Moody’s had disclosed that in February it was pondering downgrading its credit ratings of major banks in the U.S. and Europe.
According to the Houston Chronicle, “a downgrade usually means that it becomes more costly for banks to raise money by selling debt. Investors demand higher interest for riskier debt, which is what the downgrades represent. However, with interest rates already at rock-bottom levels, the downgrades may not affect the cost of funding for the banks that much.”
The downgrades occur at a moment of great uncertainty in the global economy. Europe’s currency union remains under dire threat from bad bank loans. The U.S. economy is slowing down and the fast-growing emerging markets of India, Brazil and China are also cooling. Hence, financial markets are in a state of high volatility.
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