U.S. stock markets bounced back the morning after downgrades of 15 global banks by Moody”™s Investors Service sent global markets to one of the worst days of 2012.
By 11 a.m. on June 22, the Dow Jones Industrial Average and S&P 500 index were each up more than 0.4 percent.
Included among the downgrades were Bank of America Corp., dropped one notch to Baa2 from Baa1, Citigroup Inc., dropped two notches to Baa2 from A3, Goldman Sachs Group Inc., dropped two notches to A3 from A1, JPMorgan Chase & Co., dropped two notches to A2 from Aa3, and Morgan Stanley, dropped two notches to Baa1 from A2.
The downgrades leave Bank of America and Citigroup just two notches above “junk” ratings. Morgan Stanley, which is now three levels above a “junk” rating, was on the verge of a three-notch downgrade, but successfully persuaded Moody”™s to lower the bank”™s rating by two notches, according to multiple published reports.
“All of the banks affected by today”™s actions have significant exposure to the volatility and risk of outsized losses inherent to capital-markets activities,” said Greg Bauer, managing director of global banking at Moody”™s, in a statement released June 21.
Bauer added that while many of the banks in question engage in other business activities that can “provide important ”˜shock absorbers”™ that mitigate the potential volatility of capital markets operations,” those activities “also present unique risks and challenges.”
The Dow Jones Industrial Average fell 1.96 percent on Thursday, its second-biggest decline in 2012, and the S&P 500 fell 2.2 percent.
Moody”™s warned of downgrades in February, when it said it would review the ratings of more than 100 global banks, citing global market volatility.
Other banks that experienced downgrades included Barclays Plc., Credit Suisse Group A.G., HSBC Holdings Plc., BNP Paribas, Credit Agricole S.A., Deutsche Bank A.G., Royal Bank of Canada, Royal Bank of Scotland Plc., Societe Generale, and UBS A.G.
