S&P cuts bank ratings, blames “uncertain market conditions”

Banks still in recovery from the 2008 financial crisis, which drove some economies into recession and spawned new regulations and legal probes

     S&P maintained its ratings for UBS because it considers the Zurich-based company to be ‘the most active bank in reducing its exposures to investment banking. Photograph:   Spencer Platt/Getty Images

S&P maintained its ratings for UBS because it considers the Zurich-based company to be ‘the most active bank in reducing its exposures to investment banking. Photograph: Spencer Platt/Getty Images

 

Barclays, Deutsche Bank and Credit Suisse had their credit ratings lowered by Standard & Poor’s as new rules and “uncertain market conditions” threaten their business. Long-term counterparty credit ratings for Barclays and Deutsche Bank were cut to A from A+, while Credit Suisse was reduced to A- from A, S&P said in a statement. S&P also affirmed its A long-term rating and A-1 short-term rating on UBS, according to the statement. The outlook for all four is stable.

Banks are still in recovery from the 2008 financial crisis, which drove some economies into recession and spawned new regulations and legal probes. The four European lenders are among the most exposed to proposed rules that could reduce revenue from trading and investment banking operations, the ratings firm said.

“We consider that these banks’ debt holders face heightened credit risk owing to the industry’s tighter regulation, fragile global markets, stagnant European economies and rising litigation risk stemming from the financial crisis,” S&P said. “A large number of global regulatory initiatives are increasingly demanding for capital market operations.”

“The downgrade by S&P is a reminder to investors on the risk of these lenders in the uncertain environment,” said Ronald Wan, a committee member at Hong Kong Securities and Investment Institute. “The market is expecting the US economy to recover but it’s unlikely to be a very strong recovery and the fate of the quantitative easing policy is still unclear. The stock valuation of these lenders may be negatively affected by the downgrade.”

S&P maintained its ratings for UBS because it considers the Zurich-based company to be “the most active bank in reducing its exposures to investment banking.”

UBS, Switzerland’s biggest bank by assets, said in October that it will cut about 10,000 jobs and retreat from capital-intensive trading businesses. – (Bloomberg)