The Banking and Strategy Initiative

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The Global downward spiral for US banks: S&P posts a downgrade in the mail

37 downgrades, counting JP Morgan, Goldman Sachs and HSBC

Sobering up the ebullient US mood before holiday season begins in earnest was more bad news for US banks. in the last week of November banks have traced back 2-3% of their losses in November but the week will probably end with BofA tanking below $5 and as market watchers say, probably below a buck for good measure to follow in Citi’s steed from 2010

JP Morgan managed to maintain a lowly but adequate A grade on par with upgraded Bank of China and the behemoth ICBC also holding on to its A. The big US banks in the mean time, try to fly below the radar but have been marked to A- by Standard & Poors for their long term ratings , hitting Goldman Sachs, Citi and BofA below the belt.

Even though the three banks are not counted with those with running European sovereign exposure, their internal desks would now be busy through the week or December as such posting extra collateral on their loans and calculating differential inetrest payments due, as the one point downgrade increases requirements for collaterals with the Fed and with inter bank lenders like JP Morgan and each other . It was AIG’s quest for collateral demanded by JP Morgan and Lehman’s inability to pay their overnight obligations that erupted in their face in Septrember 3 years ago.

European Risk

Last month had been a busy one with rumors of extra exposure shutting down Jeffries *& Co ( bankers to MF Global) and Morgan Stanley ( Gross European exposure of $40 bln) but both survived the MF Global saga and Italian, Beligan and French yield drama. Spanish and French auctions are scheduled for today. EFSF will start providing minimal guarantees on European bonds from Italy, Spain and others to 10% and then maybe more from Dec 2 In a separate EU plan, ECB gets down to saving bank creditors from unforeseen haircuts

(EU writedown plan)Owners of long-term unsecured debt in a collapsing bank would be first in line to take losses under draft plans from the European Union to protect taxpayers’ money from future bailouts.

Short-term debt, with a less than one-year maturity, and derivatives should only be written down by regulators as a last resort if losses from longer-term debt aren’t “sufficient to restore the capital of the institution and enable it to operate as a going concern,” according to a draft European Commission proposal obtained by Bloomberg News.

S&P counting on Government(s’) support

Chinese banks were rated higher as BOC was upgraded with a stable outlook ICBC and CCB also maintain a stable outlook higher than Citi and Bank of America as their governments are closer behind them to support the bank according to a separate statement by S&P(China) That would also account for the relative higher ratin gof a very weak UBS and a bleeding Barclays

HSBC was also downgraded a notch albeit from AA to a never before A+ still ahead of all others in the US and China. UBS and Barclays currently count the samer to S&P as JP Morgan and above Goldman Sachs and Citi in the long term ratings. The deposit bearing Citibank NA was downgraded from A+ and maintains an A rating alongwith Barclays and JP Morgan. BNY Mellon and Wells Fargo were also cut a notch to A+. S&P has used new rating criteria it notified int he second week of November

Brazilian Banco de Brazil companies, Argentinian Banco BBVA and many Latam units of Banco Santander were also down graded. Latin American units , Bank of America ( except for its unit in Mexico) and Citigroup units are on negative ratings watch pending more rating action in the next 90 days. S&P has graded BOC, China Construction Bank , Rabobank (AA), BNP Paribas(AA-) and Credit Agricole(A+ except consumer finance subsidiary) units with a stable outlook 

Analysis is based on news references below and this feeder article on



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