JPM, BK Likely to Suffer Rating Cut - Analyst Blog
August 04 2011 - 8:45AM
Zacks
Over the next 18 months, debt ratings of JPMorgan Chase
& Co. (JPM) and Bank of New York Mellon
Corporation (BK) might be lowered by Moody's Investors
Service, the rating arm of Moody's Corp. (MCO).
According to the rating agency, both these banks might receive less
government support for their bailout in the future, which would be
the prime reason behind the possible rating cut.
Though the rating agency confirmed JPM’s senior debt rating at
‘Aa3’ and BK’s at ‘Aa2’, it imparted Negative outlook to both the
banks. This, in turn, reflects that the ratings might be cut over
the next 12–18 months. In July, the rating agency had put both
these banks’ ratings under review for further downgrade.
Additionally, the rating agency stated that it affirmed the
senior debt ratings of JPM and BK as it maintained its rating on
the U.S. government at ‘Aaa’.
The rating agency also commented that by giving Negative outlook
to JPM and BK, it is trying to match the banks’ outlook with its
Negative outlook on the U.S. debt. However, it anticipates that due
to various regulatory changes after the implementation of the Dodd
Frank Act, these important financial institutions might receive
less support from the government.
Apart from JPM and BK, other banks imparted with Negative
outlook by Moody’s include Goldman Sachs Group,
Inc. (GS) and State Street Corp.
(STT).
We believe that the negative outlook for JPM and BK would lower
investors’ confidence in their respective stocks. Also, debt
ratings downgrade would lead to higher borrowing costs for both the
banks.
Currently, JPM retains a Zacks #3 Rank, which translates into a
short-term ‘Hold’ rating, while BK retains a Zacks #4 Rank, which
implies a short-term ‘Sell’ rating.
BANK OF NY MELL (BK): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
MOODYS CORP (MCO): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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