Famous financial institutions in Europe, US, and Canada hit by being downgraded

Famous financial institutions in Europe, US, and Canada hit by being downgraded

Pierre Leblanc and James Jomo

Modern Tokyo Times

Moody’s credit rating agency hit the headlines after downgrading major banks and financial institutions. These major players were downgraded because of various internal factors but once more it highlights the weakness of the global financial system. This comes on top of negative economic news coming out of America and with the European economic crisis just rolling on from week to week.

In the United Kingdom Barclays, HSBC and the Royal Bank of Scotland were included in the downgrade. This means that banks which have been implicated fear that the recent downgrade will make it more complex for them to borrow money in the commercial arena. Also, the major financial institutions in the United Kingdom are highlighting the continuous economic woes of this nation because it is like “a mirror” of wider problems which continue to hinder the economy.

Greg Bauer at Moody’s commented that “All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.”

However, the Royal Bank of Scotland was unhappy about being linked because of recent strengthening of its capital base. Therefore, a statement was issued stating that “The group disagrees with Moody’s ratings change which the group feels is backward-looking and does not give adequate credit for the substantial improvements the group has made to its balance sheet, funding and risk profile.”

Other financial institutions hit by the downgrade apply to the Bank of America, Goldman Sachs, JP Morgan, Citigroup, Deutsche Bank, Morgan Stanley, Credit Agricole, BNP Paribas, UBS, Credit Suisse, Royal Bank of Canada and Societe Generale. It is also clear that other international financial institutions have major problems because nations like Spain are grappling with the serious economic downturn in this nation. Yet the names that have been downgraded by Moody’s highlight the current weakness within the financial system because these institutions are among the elite of global finance.

Moody’s also made it known that some of the above banks have been placed under the “negative outlook” system. This means that a further downgrade is possible in the near future and this highlights the reality that state intervention is needed to keep the capitalist cog running during difficult times. Therefore, the possible future downgrade of some institutions on the list is related to governments withholding their support in the future.

Robin Sidel and Aaron Lucchetti in The Wall Street Journal comment that “The downgrades come as unease plagues global markets. Many investors have been skeptical of banks’ capacity to withstand an economic downturn or market shock tied to the European debt crisis.”

“Concerns like these have widened in recent weeks amid signs that Greece may exit the euro zone and that economic growth is slowing in the U.S. and China.”

Citigroup, just like the Royal Bank of Scotland, isn’t happy about the downgrade. Therefore, Citigroup commented that it “strongly disagrees with Moody’s analysis of the banking industry and firmly believes its downgrade of Citigroup is arbitrary and completely unwarranted.”

Of course the downgrade by Moody’s is extremely complex and each institution needs to be viewed on respective merits. Some institutions are hinting that Moody’s is trying to make-up for being over optimistic when the international economic crisis first emerged several years ago. Thereby, Moody’s is now over compensating in the opposite direction. However, overall it is clear that many leading financial institutions are still blighted by many internal weaknesses and rather than “playing football” with the analysis of Moody’s, it is more important to overcome the flaws and risks within each respective institution.

http://online.wsj.com/article/SB10001424052702304441404577480751440488004.html

http://www.businessinsider.com/downgrade-watch-five-us-banks-will-be-hit-in-moodys-cuts-2012-6