Moody's Bank Downgrade Warnings Look Very Staged (CS, MS, UBS, BCS, DB, GS, HBC, BAC, NMR, FAS)

If you think ratings agencies do not quite matter any longer, today may be a reminder that they can still create at least some nervousness even if they are just late to the party.  Moody’s has a downgrade warning on 17 banking and investment banking outfits.  While this is a ‘warning’ rather than a downgrade, this certainly looks and feels staged to the point that the downgrades on most of the banks and investments seems assured on level or another. In short, this is being staged.

In the Moody’s warning, Credit Suisse Group (NYSE: CS), Morgan Stanley (NYSE: MS), and UBS AG (NYSE: UBS) were put on notice that their credit ratings could be downgraded potentially by as many as three notches.  That is a very aggressive downgrade warning, and it now almost assures that a downgrade of one or two notches is almost certain.

Warnings of a two notch downgrade were handed out to Barclays PLC (NYSE: BCS), BNP Paribas, Credit Agricole, Deutsche Bank AG (NYSE: DB), Goldman Sachs Group Inc. (NYSE: GS) and HSBC Holdings PLC (NYSE: HBC). This seems to all but assure that at least a one notch downgrade could come on these.

Interestingly enough, Bank of America Corporation (NYSE: BAC) and Nomura Holdings, Inc. (NYSE: NMR) were “only” given warnings of a possible one notch downgrade.

Moody’s noted that these existing ratings just do not reflect the current market challenges.  Here are the pre-market trading indications on each, in New York trading indications:

• Credit Suisse Group (NYSE: CS) -0.7% at $25.36;
• Morgan Stanley (NYSE: MS) -2% at $18.58;
• UBS AG (NYSE: UBS) is down only $0.01 at $13.91;
• Barclays PLC (NYSE: BCS) is down 0.4% at $14.97;
• Deutsche Bank AG (NYSE: DB) is down 1.2% at $42.45;
• Goldman Sachs Group Inc. (NYSE: GS) is down 0.5% at $112.55;
• HSBC Holdings PLC (NYSE: HBC) is down 0.5% at $44.69;
• Bank of America Corporation (NYSE: BAC) is down 0.8% at $7.72.

Even the triple-leveraged Direxion Financial Bull 3X Shares (NYSE: FAS) is down ‘only’ 0.7% at $86.30 in the pre-market.

What is interesting here is that the move lower this morning is on the heels of major moves higher since the first of the year.  The downgrades seem assured on at least some level now, but the market is not really acting as though it is ready to panic.

JON C. OGG