Moody’s cuts ratings of three big US banks

Moody's has cut the credit ratings of big U.S. banks including Morgan Stanley, Goldman Sachs and JPMorgan Chase, after deciding that the federal government is less likely to bail the financial institutions out if they get into future difficulties.

Goldman, Morgan Stanley and JPMorgan had the ratings on their long-term senior unsecured debt lowered one notch to Baa1, Baa2 and A3, respectively, Moody's said on Thursday. The credit ratings on the three banks' subordinated debt were also cut by one notch.

The review by the second-largest rating agency, in terms of market share, follows a similar statement from rival Standard & Poor's in June, and comes as governments attempt to avoid a repeat of the bailouts of the credit crisis era.

Wall Street reforms under the Dodd-Frank Act forbid the use of taxpayer money to save a failing bank and require the creation of a resolution authority to wind down institutions once they get into trouble, imposing losses on creditors in the process.

"We believe that U.S. bank regulators have made substantive progress in establishing a credible framework to resolve a large, failing bank," said Robert Young at Moody's. "Rather than relying on public funds to bailout one of these institutions, we expect that bank holding company creditors will be bailed-in and thereby shoulder much of the burden to help recapitalise a failing bank." Read more >>