Saturday, June 23, 2012

A Sober New Reality in Credit Downgrades for Banks

When a consumer’s credit score drops, it is hard to recover financially. Wall Street firms could face the same fate.  Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup  all suffered credit ratings cuts on Thursday. The rating agency Moody’s Investors Service said that, even though these banks had moved to strengthen their operations, their core trading businesses contained structural weaknesses.

In other words, the downgrades reflect the new sober era for Wall Street. Since Moody’s put the banks on warning in February, the firms have had time to brace themselves and the immediate impact of the cuts is not likely to be drastic. But banking industry analysts say they think Moody’s actions will cause lasting pain...

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