Bank Credit Downgrades?

By: Ian Campbell | Fri, Nov 25, 2011
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Toronto based The Globe and Mail republished a Friday, November 18 Reuters article written by David Henry titled 'S&P to update bank credit ratings within three weeks' - reading time 5 minutes. The article says that Standard & Poor's is planning to update its credit ratings for the world's 30 largest banks within three weeks, and that those updates may include downgrades. The article specifically mentions Bank of America, Citigroup, and Morgan Stanley as possible downgrades, and says that some European Banks might (likewise) be affected. These updates are said to be "part of a major overhaul of S&P's methods for scoring creditworthiness of some 750 banking groups". A managing director at S&P, Jayan Dhru, is reported in the article to have said that the new S&P bank ratings methodology will apply consistent measurements of bank capital, "something that is weak in the ratios banks report under international Basel standards designed by regulations that allow individual countries latitude in how their banks count capital".

I say, and I think these are things you should consider carefully as financial market investors and traders:

That said, one can hardly argue that taking a harder look at things can be criticized.

It will be interesting to see what S&P's has to say in the next few weeks, where the article says the new credit rating results might be out by the end of November. Certainly I have to think that any downgrades to the credit ratings of any of the largest world banks will not be seen as a good thing by the financial markets. But then again, perhaps those sages who 'make' the financial markets are sitting today believing the financial markets already have 'priced in' S&P's yet to be announced 'new credit ratings'. While that might be the typical 'street talk', I hardly think it has veracity.

 


 

Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Economic Straight Talk

Through the Economic Straight Talk Newsletter Ian R. Campbell shares his perspective on the world economy, the financial markets, and natural resources. A recognized business valuation authority, he founded Toronto based Campbell Valuation Partners (1976), Stock Research Portal (2007) a source of resource companies market data and analytic tools, and Economic Straight Talk (2012). The CICBV* annually funds business valuation research in his name**. Contact him at icampbell@srddi.com.
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