Already grappling with weak profits and global economic turmoil, 15 major banks were hit with credit downgrades on Thursday that could do more damage to their bottom lines and further unsettle equity markets.
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The credit agency, Moody’s Investors Service, which warned banks in February that a downgrade was possible, cut the credit scores of banks to new lows to reflect new risks that the industry has encountered since the financial crisis.
“The risks of this industry became apparent in the financial crisis,” said Robert Young, a managing director at Moody’s. “These new ratings capture those risks.”
Citigroup and Bank of America, which have struggled to fully recover from the financial crisis, were among the hardest hit. After the downgrades, the banks stand barely above the minimum for an investment grade rating, a level also known as junk and a sign of the difficult business conditions they face.
Executives at the banks argued on Thursday that the new ratings failed to reflect the safeguards and changes that they had put in place in recent years.
The cuts come at a time of tumult within the industry. Banks have struggled to improve their profits against the backdrop of the European sovereign debt crisis, a weak American economy and new regulations.
The downgrades may amplify their problems. With lower ratings, creditors could charge the banks more on their loans. Big clients may also move their business to less-risky companies, further crimping earnings.
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