New York, August 22, 2013 — Moody’s Investors Service has placed the senior and subordinated debt ratings of the holding companies for the six largest US banks on review as it considers reducing its government (or systemic) support assumptions to reflect the impact of US bank resolution policies. Four — Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo — are on review for downgrade. Two, Bank of America and Citigroup, are on review direction uncertain, as the rating agency considers the potentially offsetting influence of improvements in the standalone credit strength of their main operating subsidiaries, the ratings on which were simultaneously placed on review for upgrade. Included in the review are the short-term ratings of several of these bank holding companies, as described further below. Two additional banks, Bank of New York Mellon and State Street, whose ratings were previously placed on review for downgrade, are also included in this review.
At the same time, and also in response to the possible reduction of government support assumptions, the ratings on the bank-level subordinated debt of JP Morgan Chase Bank N.A. and Wells Fargo Bank N.A. were placed on review for downgrade, while those at Bank of America N.A. are on review direction uncertain. The bank-level subordinated debt ratings of The Bank of New York Mellon and State Street Bank and Trust, which were previously placed on review for downgrade, are also included in the review. There is no rated bank-level subordinated debt outstanding at Citibank N.A., Goldman Sachs Bank USA or Morgan Stanley Bank N.A.
Moody’s actions follow its March 2013 announcement that it would reassess its support assumptions for bank holding companies in the US and that it would consider whether to revise these assumptions by the end of the year.
As US bank resolution policies continue to evolve, Moody’s will assess the opposing forces that may have an impact on bondholders at the holding company level should a bank become financially distressed. The first is a lower level of systemic support that could result in a higher probability of default. The second is the potential for a more orderly workout and a required minimum level of holding company debt that may well limit losses in the event of a default. The reviews will also consider the implications of such policies for bank-level subordinated bonds, which may also be subject to burden-sharing in the event of severe financial distress. In addition, for four of the eight banks — Bank of America, Citigroup, Bank of New York Mellon, and State Street — the reviews will also consider the banks’ standalone or baseline credit assessments — positively for the first two, and negatively for the latter two.
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