Jun 22, 2012 3:38 AM GMT
Moody's Investors Service issued downgrades to 15 of the world's biggest banks Thursday, saying that they all had "significant exposure" to volatility and risk inherent in their global trading activities.
Banks such as Goldman Sachs, JPMorgan Chase, and Bank of America were among the firms downgraded by the rating agency — a move that could require the banks to pony up billions in additional collateral to cover their derivatives transactions, and also make it more expensive for them to borrow.
"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, the firm's global banking managing director. "However, they also engage in other, often market leading business activities that are central to Moody’s assessment of their credit profiles. These activities can provide important ‘shock absorbers’ that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges."
Moody's had announced earlier this year that it planned to review its rating rationale for global banks in the wake of the financial crisis, and had already downgraded two other banks before Thursday.
The Swiss bank Credit Suisse was downgraded three notches by Moody's, while Morgan Stanley and UBS each saw their ratings drop two levels.
As rumors of the downgrades spread among financial markets Thursday afternoon, stocks took a steep turn for the worse. The Dow Jones Industrial Average close the day down 250 points or nearly two percent, its second worst day of the year.