Banco Santander, Bank of America, JPMorgan Chase, and Wells Fargo ― whose auto finance units rank among the largest in the country ― are among 37 financial institutions worldwide whose credit ratings took a hit yesterday.
Standard & Poor’s, the agency that downgraded the credit rating of the U.S. in August, lowered its rating on the banks based on new criteria released last month. S&P will release evaluations of the individual bank groups affected by the changes.
Other institutions affected by the rating action include Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, and Morgan Stanley.
Typically, ratings downgrades result in higher borrowing costs.
Click here for the full list of S&P rating actions.
Are some of these the same US banks that have told the Fed that they have too much capital, are too strong, and want to pay out big dividends and buy back their stock? How embarrassing!
It would appear that there is a big disconnect between the CEO’s view of their financial soundness and that of the rating agencies.
The media needs to sort this all out in public with full disclosures of how this could be!
Of course, as it pertains to the post, they are under-loaned so the higher borrowing costs may be more related to their arbitrage of the US Securities in their bloated investment portfolios than to their auto finance portfolios.
It may reflect a reassessement of the overall highly leveraged enterprise banking is. Capital requirements are relatively thin compared to other industries leaving little capital cushion for unexpected losses. Maybe S&P is reserving the highest ratings for those banks than voluntarily keep equity equal to more than 10% of assets?
You are correct and it is one more reason to bring back Glass-Steagall or break up the mega banks.
At any rate, the media needs to host some event and let the ratings companies provide a PUBLIC EDUCATION and SYMPOSIUM for the bank CEO’s and for the regulators.
Walter Wriston, former CEO of Citi, once wrote a book trying to state that RISK was not a 4-letter word.
Would anybody dare to think that today with the current mega-bank existence?
Very similar to the lending landscape in the auto leasing business. There’s a huge market that few lenders have chosen to reenter.