Banks' to Be Downgraded This Week

     As if we need any more negative shocks, Moody's plans to downgrade a number of the worlds largest banks next week, including 5 of the 6 largest US bank. This move will not only increase the borrowing costs of banks but could change the way municipal governments borrow as well.

    "Moody's Investors Service has said it is likely to reduce by the end of June credit ratings for 17 large global banks, including five of the six biggest U.S. financial firms by assets. The downgrades are expected to raise borrowing costs and crimp some lucrative trading businesses at the banks, including at J.P. Morgan ChaseJPM +2.65% & Co., Bank of America Corp., BAC +1.89%Citigroup Inc., C +3.20%Goldman Sachs Group Inc. GS +0.57% and Morgan StanleyMS +2.24% ."

     "The ratings adjustments also could affect how municipalities raise money to provide services and build schools, how money-market funds invest cash from companies and savers, and how banks raise capital to support their lending and trading. Already, money-market funds are curbing some lending to banks, and cities and states are switching bankers."

     "Many debt investors have rushed into safe-haven assets such as U.S. Treasurys and are avoiding any investments that have even an inkling of risk."

     "The ratings action has been in the works since February, when the Moody's Corp. unit said it would review the credit ratings of more than 100 banks around the world because of pressures on bank profits. Those threats include uneven economic growth, nervous financial markets and tighter regulations. A Moody's spokesman declined to comment."

     http://online.wsj.com/article/SB10001424052702303296604577454284259305826.html?mod=WSJ_WSJ_US_News_5

     That this is expected is about the only silver lining. Maybe the market already reflects this move. The last thing that we need is more trouble for municipal governments in borrowing. And to think that there was supposed to be an "popping of the bubble in Treasuries" last year.

     Cities are going to have to either go elsewhere or try to get alternative ratings from the other agencies:

     "In Cleveland the city's debt manager, Betsy Hruby, raced to replace Bank of America as the backer of $90 million of water-department bonds. "We realized that might have an impact on the rate" of the bonds, she said."

      "Ms. Hruby turned to Bank of New York Mellon Corp., BK 0.00% which isn't under Moody's scrutiny."

      "Other municipalities are seeking additional ratings from other ratings companies such as Moody's rivals Fitch or Standard & Poor's, which aren't planning to downgrade the banks anytime soon.
The Pittsburgh Water and Sewer Authority asked Fitch to rate about $73 million of variable-rate bonds it sold in 2008 backed by Bank of America, according to Stephen Simcic, acting co-executive director at Pittsburgh Water."

     "That gave the authority a third rating, along with S&P and Moody's. The extra rating means the bonds now have at least two top short-term grades, offsetting any impact from a Moody's downgrade."