U.S. banks, like Citigroup and Bank of America to name a few, are facing credit downgrade ratings within three weeks, according to a new announcement from Standard & Poor’s (S&P). The ratings agency said that it is in the process of updating its credit ratings. As a result, up to 30 of the world’s biggest banks could see their ratings drop.
S&P Adjusts Ratings Causing Credit Downgrade
In response to sharp criticism for its lenient methods of rating mortgage securities years ago, which many say contributed to the housing bubble burst and subsequent financial crisis– along with its unpopular downgrade of the U.S. credit rating–S&P has vowed to change the way it runs business.
The agency says it plans to overhaul its methods for scoring the creditworthiness of some 750 banking groups, as well as improve its products in order to repair its reputation.
While S&P has not gone into great detail about the changes it plans to make, it has explained that the new rating system will be complex and may grade bank holding companies differently than their operating units. Also, banks may see variations in long-term and short-term ratings.
U.S. Banks Bank of America, Citigroup and Morgan Stanley to Face Downgrades
Once S&P finishes overhauling its system, experts say that a number of major banks, including Bank of America, Citigroup and Morgan Stanley, could face credit downgrades that could shake the financial markets.
Some European banks could also be affected by the agency’s changes. On November 9, S&P downgraded its scores in a number of countries, including Denmark, Finland, Sweden and the Netherlands.
Earlier this month, the agency noted in published final criteria that it expects 60 percent of all bank ratings to stay the same, while 20 percent will even go up one notch. It said only about 5 percent of banks will likely experience one-notch downgrades, meaning for example that they could drop from A to A-minus.
The agency plans to announce which of the 30 biggest banks will see changes in their ratings as early as late this month. Afterward, it will begin quickly rolling out its ratings for smaller banks.
