Moody’s may downgrade big banks

By Bloomberg News
June 3, 2011

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NEW YORK - Moody's Investors Service may downgrade Bank of America Corp., Citigroup, and Wells Fargo & Co. as the rating firm reviews whether the government will limit its support of the largest financial firms.

The banks are considered by investors to be too big to fail after receiving government aid in 2008 to bolster the financial system. But the government's intent ''is very clear,'' said Moody's senior vice president Sean Jones: ''It does not want to bail out even large, systemically important banking groups.''

Bank of America, Citigroup, and Wells Fargo have raised funds from private investors to repay US aid and have been building capital to guard against further declines in housing prices.

''We believe that our stand-alone rating should be higher given the progress that we've made to strengthen our balance sheet, improve our capital and liquidity and reduce our risk profile,'' said Jerry Dubrowski, a Bank of America spokesman.

Bank of America and Citigroup ''have sizable residential mortgage exposures,'' Moody's said. ''Their credit costs could therefore spike if the US economy were to contract again. Further, they continue to face litigation costs related to faulty foreclosure practices.''

Bank of New York Mellon Corp. had the outlook on its debt lowered to ''negative'' from ''stable,'' Moody's said. That brings it in line with other financial firms benefiting from the assumption of US support.