This will cheer you up. Moody’s is planning to downgrade Goldman Sachs and Citigroup. Too bad it’s three years too late. But better late than never.
The announcement that 17 banks and securities firms that have exposure to global capital markets will be reviewed for potential rating downgrades by Moody’s Investors Service (NYSE:MCO) has renewed fears of a downward spiral of confidence that may reach some of the U.S.’s biggest banks. Two of the banks that may have their ratings cut by two or more notches include Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C), both firms play a major role in the international financial markets and specifically in the issuance of corporate and sovereign bonds in many of the European countries now dealing with risks of default or re-structuring. Moody’s has stated ‘capital markets are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions.’
These are powerhouse banks. They have been untouchable for decades. That Moody’s is contemplating this, and has gone public, indicates the extent of the weaknesses of these two banks.
There is a banking crisis brewing. Moody’s does not want to be caught with its pants down, the way it was in 2008.
The ever-changing global economic picture continues to wreak havoc on the banks and financial institutions that conduct business in the Eurozone and despite assurance from leaders that a resolution is at hand, the rating agency is now re-visiting their review process and in some cases extending their examination to better understand what risks are present.
This is not prime time news. It gets no coverage. The average Joe has not seen this. He would not understand it if he did see it.
The task at hand is nothing short of monumental. The complexity of understanding all of the moving parts in a bank’s operations is not easy nor a quick effort for any rating agency. The big three agencies include Moody’s, S&P and Fitch and the importance of their ratings cannot be over-estimated in an environment where data-crunching analysts rule the day and a ‘let the chips fall where they may’ attitude has been viewed by some as reckless or unknowingly detrimental to business.
You are ahead of the curve. Stay there.