BofA, Goldman, Barclays Have Fitch Credit Ratings Cut

By Hugh Son - Dec 16, 2011 8:29 AM GMT+0700

Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) had their credit grades cut by Fitch Ratings as the impact of financial regulation and market turmoil (VIX) weighed on the industry.

The lenders’ long-term issuer default ratings were cut one level to A from A+, Fitch said yesterday in a statement. Barclays Plc (BARC), based in London, Credit Suisse Group AG (CSGN), Deutsche Bank AG (DBK) and BNP Paribas SA also had their grades lowered.

The moves complete a review of financial firms by the three major rating companies. Moody’s Investors Service cut banks in September, citing a lower probability that the U.S. will support the industry in an emergency. Standard & Poor’s lowered ratings last month. Lenders including Bank of America and Citigroup have said they may have to post billions of dollars in collateral and face higher funding costs in the event of downgrades.

“It’s hard to take anything positive from this; it speaks to the sentiment overall on global financial firms right now,” said Michael Nix, who helps manage about $925 million at Greenwood, South Carolina-based Greenwood Capital Inc., including Morgan Stanley (MS) shares. “It also validates what the other raters have already done, and to an extent was expected.”

Bank of America climbed 0.6 percent to $5.26 yesterday, New York-based Goldman Sachs fell 1.5 percent and Citigroup slid 0.5 percent. The shares of all three were little changed in extended trading after Fitch’s announcement.

Biggest Lenders

Credit ratings of the world’s biggest lenders have come under pressure amid weak economic growth and doubts about whether European regulators have done enough to end the sovereign-debt crisis. Lenders in the region must raise about 114.7 billion euros ($149 billion) in capital to help address the turmoil, the European Banking Authority said last week.

Fitch downgraded Barclays and Zurich-based Credit Suisse to A from AA-, while lowering France’s BNP Paribas (BNP) and Deutsche Bank to A+ from AA-. Fitch corrected an earlier version of its statement to announce that Frankfurt-based Deutsche Bank was cut one level instead of two. Morgan Stanley’s long-term issuer default rating was affirmed at A.

The downgrades may increase pressure on firms facing stagnant revenue growth. Bank of America said last month that a one-level downgrade by all rating companies could amount to $5.1 billion in collateral demands as of Sept. 30.

The full scope of damage from a credit-rating downgrade is “inherently uncertain” because it depends upon the behavior of counterparties and customers, the Charlotte, North Carolina- based firm said.

‘Strong Liquidity’

“This decision is driven more by concerns about the global economy than the specific credit quality of Bank of America,” Jerry Dubrowski, a spokesman for the lender, said in an e-mailed statement. “We continue to maintain strong liquidity levels and to build capital.”

A one-level rating reduction for Citigroup’s deposit-taking unit could trigger an estimated $4 billion of collateral payments and other cash obligations, the company said in a regulatory filing.

Citigroup has made “enormous progress refocusing our business strategy to take advantage of our global network” Jon Diat, a spokesman for the New York-based bank, said in an e- mailed statement. “With a strong capital base, robust structural liquidity and ample reserves, Citi is well-positioned for the future.”

Representatives for Goldman Sachs, BNP, Deutsche Bank, Credit Suisse and Barclays declined to comment. Mark Lake, a spokesman for New York-based Morgan Stanley, said the firm was “gratified” that Fitch affirmed its ratings.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net