BofA, Wells Fargo Downgraded by Moody’s

Bank of America Corp. (BAC) and Wells Fargo & Co. had their long-term credit ratings downgraded by Moody’s Investors Service, citing a decreasing probability that the U.S. would support the lenders in an emergency. Citigroup Inc.’s short-term rating also was cut.

The government is “more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute,” Moody’s wrote in statements today on Bank of America and Wells Fargo. While Citigroup may lose backing as well, its stand-alone credit has shown improvement, Moody’s said, confirming the bank’s long-term rating.

U.S. financial companies may lose their too-big-to-fail status as regulators create a system for dismantling large firms that get into financial trouble. Lawmakers have vowed to prevent a repeat of taxpayer-funded bailouts after 2008’s credit crisis.

Bank of America’s ratings were cut to Baa1 from A2 for long-term senior debt and to Prime-2 from Prime-1 for short-term debt, according to a Moody’s statement. The outlook on long-term senior ratings remains negative. The Charlotte, North Carolina- based bank said it disagrees with Moody’s decision.
Wells Fargo’s senior debt was downgraded to A2 from A1, according to a separate statement today. The outlook remains negative on the senior long-term ratings, indicating another cut may be ahead for the San Francisco-based lender.

BofA Disagrees

Citigroup, had it short-term credit ratings cut to Prime 2 from Prime 1. The confirmation of New York-based Citigroup’s A3 long-term rating, and the A1 long-term and Prime-1 short-term ratings of Citibank N.A., took into account the probability of decreased U.S. support as well as “an improvement in the bank’s stand-alone credit profile,” Moody’s said. Liquidity has “strengthened significantly in the past two years and is robust.”

Bank of America disputed Moody’s decision.

“We believe our ratings should be higher,” the company said in a statement. Still, “to minimize any potential impact of this decision on our business, we have been managing our liquidity carefully and we have prefunded our planned borrowing needs for the year.”

read more: Olympus Wealth Management