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World Biggest Bank's Credit Rating Slashed After Spain Reveals More Debt

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From the Guardian:

Moody's has cut the ratings of 15 of the world's biggest banks, hours after the markets were digesting the admission by Spain that its banks could need up to €62bn of bailout money to see them through the next three years.

The result of the independent audit of Spain's banks put the gap in their finances at between €16bn and €62bn – similar to the €50bn calculated by the International Monetary Fund (IMF) two weeks ago.

Banking giants including Bank of America, Barclays, Citigroup, HSBC, Goldman Sachs, Morgan Stanley and Royal Bank of Scotland all had their credit ratings cut.

The ratings agency said the cuts reflected declining profitability in an industry suffering from a slowdown in economic growth, tougher
regulations and nervous investors.

A downgrade can push up the cost of borrowing for a bank and require it to put up extra collateral for some existing business. Higher borrowing costs on the market could also lead banks to push up borrowing costs to customers.

Moody's downgraded the bailed out Royal Bank of Scotland by one notch – as had been warned. RBS said this would force it to post £9bn of extra collateral against existing positions but said it disputed the ratings change, which also affected its short-term debt rating.

HSBC, which had been warned of a two notch hit, declined to comment after it was cut by just one notch while Barclays was cut by the two notches that the agency had warned it faced. Moody's said the banks "have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities".

Lloyds Banking Group, almost 40% owned by the British taxpayer, was cut by one notch rather than the two that had been considered and it said the mooted change "would have limited impact on our funding costs and market capacity".

Morgan Stanley had its rating cut to Baa1, just three notches above the junk, or non-investment grade, status that many bond buyers avoid. Citigroup, which had its rating cut from A3 to Baa2, hit out at the agency, calling it "arbitrary" and "completely unwarranted". Goldman Sachs's rating was cut to to A3 from A1.

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