Moody’s Sees Possible US Bank Upgrades in Medium Term
Moody’s has weighed in on the results of the stress test for the 19 systemically important banks, which concluded that 10 of the 19 companies need to build larger capital buffers totaling $75 billion.
“The stress test results are generally in line with our Bank Financial Strength Ratings (BFSR) on these firms, our measure of a bank’s stand-alone financial strength (i.e., without government support). Also, given the clear government support that is being offered to these institutions in the event they cannot meet the required capital increases on their own, which is already factored into our ratings, we do not expect to make any changes to our ratings on deposits, senior debt, or senior subordinated debt of these firms in response to these results.”
All else being equal, upgrades could be contemplated in the medium term if the capital buffers being required become a permanent feature of these firms.
“In contrast, and perhaps more importantly, we continue to view the government support of the banks’ most junior creditors as uncertain, especially if government preferred shares were to be converted to common equity. We will review each firm’s capitalization plan and take rating actions on relevant securities if we perceive a risk of a distressed exchange.”
For details, see: U.S. Government Stress Test Results in Line with Moody’s Existing Bank Stand-Alone and Senior Bank Rating.
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