Three US banking giants have just had their ratings downgraded to “negative” by Moody’s.
Moody’s Investor Service downgraded JPMorgan Chase, Wells Fargo and Bank of America to negative ratings after previously classifying them as stable, MarketWatch
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 the downgrade from Moody’s, all three banks’ stock prices are in the green for November, so far.
The agency also said that the downgrade of the banks’ ratings was in line with a previous downgrade of U.S. sovereign credit rating, which was also bumped down from stable to negative.
In a research note released last quarter, Moody’s said that US banks were facing “significant risk” of deposit flight due to interest rate and asset-liability management (ALM) risks.
Moody’s, which controls 80% of the global ratings industry along with Standard & Poors (S&P), is forecasting a recession for the US 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.”