The EU sovereign debt crisis has spilled over into the question of whether major global financial firms will have their prospects badly damaged by the trouble in the region. Moody’s said the answer is “yes” and threaten downgrades of over 100 financial firms across Europe, and several multinational banks which include Morgan Stanley and UBS. In theory, downgrades of these banks would shake customer confidence and make it more expensive for them to borrow money. Of course this did not happen to US borrowing power when the country was downgraded from its AAA status by S&P
The news has shaken the markets, nonetheless. With each day, either a country or a financial firm is downgraded or threatened by one of the three credit rating agencies.
“Capital markets firms are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions,” Moody’s said. “These difficulties, together with inherent vulnerabilities such as confidence- sensitivity, interconnectedness and opacity of risk, have diminished the longer-term profitability and growth prospects of these firms.”
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