Big Banks Downgraded, But Stocks Climb

Typically, the words “big banks” and “debt rating downgrades” spelled disaster for the stock market. Today they’re being met with sighs of relief.

Moody’s Investors Service downgraded the debt ratings of 15 international banks, including five of the six U.S. big banks. And yet most big bank stocks are gaining today – reflecting investors’ relief that the downgrades weren’t as bad as feared.

Back in February, Moody’s put some of the biggest financial institutions in the world on notice, announcing that it would be reviewing several big banks for possible downgrades. Financials promptly pulled in anticipation of the downgrades.

Apparently investors were expecting the worst, judging by how stocks are behaving today. The S&P 500 was up half a percent in mid-Friday trading – and the big banks were leading the way.

Here’s a list of some of the banks Moody’s downgraded – and how their stocks have performed despite the rating slash:

  • Morgan Stanley (NYSE: MS): Of all the big banks, this was the one investors clearly thought was due for harsher treatment than it got. Some thought the bank would be cut three notches. Instead Moody’s only downgraded it two notches, from A2 to BAA1. The lower-than-expected downgrade pushed Morgan Stanley shares up 1.7%.
  • Bank of America (NYSE: BAC): The much-maligned bank’s long-term debt rating was slashed only one notch, from BAA1 to BAA2. Shares jumped 0.6%.
  • Citigroup (NYSE: C): Debt rating cut two notches, to BAA2. Stock rose 0.4%.
  • JPMorgan (NYSE: JPM): Making the day’s biggest move, jumping 1.8% after having its debt rating slashed two notches.
  • Goldman Sachs (NYSE: GS): The one big bank stock that’s actually tumbling today, despite getting the same two-notch debt slashing the other banks did. Shares of GS have dropped 0.4%.
  • Wells Fargo (NYSE: WFC): The one big U.S. bank that wasn’t downgraded. As a result, WFC shares have climbed 1.5%.
Published by Wyatt Investment Research at