JPMorgan Chase, Wells Fargo and BofA have gotten negative ratings outlooks these days. This has happened while the US government explained that it has weak capacity to support big banks.
Big banks see a bleak future
Three US banking giants have just had their ratings downgraded to “negative” by Moody’s.
According to the latest reports coming from Moody’s Investor Service downgraded JPMorgan Chase, Wells Fargo and Bank of America to negative ratings after previously classifying them as stable, MarketWatch reports.
Analyst Peter E. Nerby of Moody’s said that the worsening outlook on bank debt was due to “the potentially weaker capacity of the government of the United States of America (Aaa negative) to support the U.S.’s systemically important banks.”
In particular, JPMorgan’s downgrade was partially because the bank runs a “complex” capital markets business that may post “substantial” risks to its creditors.
A potential upgrade for JPMorgan “would depend on sustaining strong and stable performance and capital levels” above its competitors, Moody’s says.
Despite Moody’s downgrade, the stock prices of all three banks have remained positive in November so far.
The agency stated that the banks’ ratings downgrade was consistent with the previously downgraded U.S. sovereign credit rating, which was also lowered from stable to negative.
In a research note released last quarter, Moody’s expressed concerns over “significant risk” of deposit flight faced by U.S. banks due to interest rate and asset-liability management (ALM) risks.
Moody’s, which along with Standard & Poors (S&P) dominates the global ratings industry, has predicted a recession for the U.S. economy early next year.
“We continue to expect a mild recession in early 2024, and given the funding strains on the US banking sector, there will likely be a tightening of credit conditions and rising loan losses for US banks.”
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