Stocks Plummeted at News of Downgrading of U.S. Banks by Moodys



Update: The stock market is up slightly today. The market is not concerned about the banks downgrades. The banks are actually doing better based on their most recent stress tests. Moodys is behind the times. The worst downgrades were those made to foreign banks.

Original Story: Stocks plummeted 251 points today on the expectation of U.S. banks being downgraded by Moodys. The downgrading came after Spain admitted that the 100 billion euro loan would be insufficient to bolster their banks and they would need another 64 billion throughout the year, spurring fears of another global recession.

CNBC: Moody’s Investors Service downgraded the debt ratings of 15 major international banks and securities firms. It means that banks will now need far more collateral. The banks say they are ready for it, but it will mean that the sparse loans available will dry up even more.

The WSJ reported that “the lower ratings are likely to raise the companies’ borrowing costs and affect how they raise capital, and could deprive some banks of trading revenue. The higher costs for banks could be passed on to customers such as municipalities, corporations and others who get loans from banks.”

U.S banks that were downgraded included: Bank of America to BAA2 from BAA1, Citigroup cut two notches, to BAA2 from A3, Goldman Sachs cut by two notches, to A3 from A1, JPMorgan cut by two notches, to AA3 from A2, and Morgan Stanley cut by two notches to BAA1 from A2.

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