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Here We Go: Fitch Places Bank Of America, All US Banks On Rating Watch Negative

Tyler Durden's picture




 

Here we go - the rating agencies are now officially in the game. Next up - collateral calls and other nasty stuff: "Today, Fitch Ratings issued a number of separate press releases placing on Rating Watch Negative most U.S. bank and bank holding companies' Support Ratings, Support Floors and other ratings that are sovereign-support dependent. The two companies mostly impacted by this announcement are Bank of America Corporation and Citigroup, Inc." BBB+ coming up.

 

 


Fitch Ratings has placed the long-term and short-term Issuer Default Ratings

 

(IDRs) as well as the Support and Support Floor ratings of Bank of America Corporation (BAC) on Rating Watch Negative following initial interpretation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and its implications for systemically important financial institutions.

FI Ratings Potentially Impacted by Proposed FDIC Rules' for additional information. Fitch's ratings of banks have always encompassed a view of intrinsic creditworthiness expressed through the Individual rating, while Fitch's view of Support has been expressed separately through its Support framework. Support Ratings communicate Fitch's judgment on whether a bank would receive support from the U.S. Government should this become necessary.

The recently enacted legislative framework and potential regulatory rulemaking primarily affect Fitch's sovereign Support framework.

At the present time, Fitch's current long-term 'A+' IDR rating for BAC incorporates a three-notch uplift for the long-term rating and a two-notch uplift for the 'F1+' short-term ratings. If Fitch determines on a going forward basis that support from the sovereign state can no longer be relied upon it is not certain that Fitch would immediately lower the IDRs of BAC to its unsupported rating level. Over the near-to-intermediate term, Fitch's fundamental credit assessment of BAC will continue to consider existing support already received, such as debt still outstanding issued under the Federal Deposit Insurance Corp. (FDIC's) Temporary Liquidity Guaranty Program (TLGP), in its ratings. As a result, IDRs will continue to incorporate support received during the crisis, as well as recent improvements in BAC's intrinsic financial profile and Fitch's expectations for continued improvement.

Fitch has maintained a '1' Support Rating on BAC, translating into a Support Rating Floor of 'A+', since the depths of the recent financial crisis. Fitch's rating criteria calls for the assignment of the 'higher-of' BAC's Support Rating Floor of 'A+' or its perceived fundamental stand-alone IDR rating (excluding support), which is currently 'BBB+/F2'. Since Fitch is placing on Rating Watch Negative all U.S. bank and bank holding companies' Support Ratings and Support Rating Floors, the IDRs of BAC and its sovereign support dependent ratings are also placed on Rating Watch Negative.

The stand-alone IDRs are driven by the Individual rating which is currently 'C'. In August 2010, Fitch upgraded BAC's Individual rating from 'C/D' reflecting efforts to boost common equity and liquidity combined with stable to improving asset quality trends in various portfolio categories. The upgrades were constrained by BAC's remaining challenges including a still high level of non-performing loans (NPLs), large reps and warranty exposure in the mortgage business as well as ongoing legal issues associated with the Merrill Lynch and Countrywide acquisitions. Further upgrades of the Individual rating and the unsupported IDRs are a possibility if operating earnings stabilize and/or increase, asset quality trends continue to improve, greater clarity emerges on ultimate reps and warranty exposure in the mortgage business and legal risks diminish. The Individual rating could be negatively affected if asset quality again deteriorates, which is not expected at least in the near term. Downward rating pressure could emerge if reps and warranties losses escalate appreciably, particularly in cost result in operating losses and erosion of capital.

BAC is one of the largest U.S. banks in terms of total deposits, loans, branches, mortgage originations/servicing and credit card issuance. Following its January 2009 merger with Merrill Lynch & Co., Inc. (Merrill), BAC became one of the top financial institutions in wealth management and investment banking.

 


 

And there's this:

Today, Fitch Ratings issued a number of separate press releases placing
on Rating Watch Negative most U.S. bank and bank holding companies'
Support Ratings, Support Floors and other ratings that are
sovereign-support dependent.
The two companies mostly impacted by this
announcement are Bank of America Corporation and Citigroup, Inc. This is
due to the fact that both entities', and their related subsidiaries',
Issuer Default Ratings (IDRs) and their respective senior debt
obligations have benefited from support provided by the U.S. government.

At the present time, Fitch's long-term 'A+' IDR ratings for Citigroup
and Bank of America incorporate a three-notch uplift for the long-term
rating and a two-notch uplift for the 'F1+' short-term ratings. If Fitch
determines on a go forward basis that support from the sovereign state
can no longer be relied upon it is not certain that Fitch would
immediately lower the IDRs of Bank of America or Citigroup to their
unsupported rating levels. Over the near to intermediate term, Fitch's
fundamental credit assessment of Bank of America and Citigroup will
continue to consider existing support already received, such as debt
still outstanding issued under the Federal Deposit Insurance Corp.
(FDIC's) Temporary Liquidity Guaranty Program (TLGP), in its ratings of
those institutions. As a result, the IDRs will continue to incorporate
support received during the crisis, as well as improvements in intrinsic
financial profiles and expectations for continued improvement.

Each of these companies has maintained a '1' Support Rating, translating
into a Support Rating Floor of 'A+', since the depths of the recent
financial crisis after each firm received and benefited from
extraordinary direct support from the U.S. government. Fitch's rating
criteria calls for the assignment of the 'higher-of' either the
companies' Support Rating Floor of 'A+' or its perceived fundamental
stand-alone IDR rating (excluding support), which is currently 'BBB+/F2'
for both affected companies. Since Fitch is placing on Rating Watch
Negative all U.S. bank and bank holding companies' Support Ratings and
Support Rating Floors, the IDRs of Bank of America and Citigroup and
their respective sovereign support dependent ratings are also placed on
Rating Watch Negative. The IDR and issue-level ratings for all other
banking companies, except for Bank of America and Citigroup and certain
related affiliates, are unaffected by today's actions since the current
IDR ratings are all above their current Support Rating Floors.

Today's actions follow Fitch's interpretation of the recently released
Notice of Public Rulemaking 'Implementing Certain Orderly Liquidation
Authority Provisions of the Dodd-Frank Wall Street Reform and Consumer
Protection Act' (proposed rule or NPR), which was issued by the FDIC on
Oct. 12, 2010. The proposed rule will govern the way the FDIC implements
the resolution of financial institutions, such as bank and insurance
holding companies or other non-bank financial institutions deemed to be
systemically important, an authority granted to the agency by
Dodd-Frank. The NPR reiterates that under no circumstances should
taxpayers ever be called upon to bail out systemically important
financial institutions in the future, nor be exposed to loss in the
resolution of these companies. While the NPR also reiterates the FDIC's
mission of resolving institutions in a manner that 'maximizes the value
of the company's assets, minimizes losses, mitigates [systemic] risk and
minimizes moral hazard,' it nevertheless makes clear that creditors,
including senior bondholders, should bear their proportion of the loss
in an orderly resolution. This more stringent mandate to impose losses
on senior unsecured creditors calls into question the very core of
Fitch's Support rating framework, the likelihood of full and timely
payment in the event that the rated institution faces serious financial
deterioration in the future.

Resolution of the Rating Watches will be based in part on language from
the final rule once formally adopted as well as Fitch's view on how the
final rule will impact its view of support. The FDIC's proposed rule is
likely to mean that should intervention be necessary some creditors,
namely senior debt, subordinated debt, and preferred and common
shareholders will incur losses consistent with their treatment as if the
entity filed a Chapter 7 (liquidation) bankruptcy petition. Importantly,
Fitch has not imputed sovereign support in its ratings for bank holding
company creditors, i.e. most U.S. bank holding companies carry a '5'
Support rating.

Fitch believes that the NPR is one of many across numerous jurisdictions
globally to govern how policy makers and regulators may address failing
or failed institutions in the future. Recently introduced resolution
regimes in some countries in Europe have so far provided similar
wide-ranging powers to the banking authorities to impose losses on bank
creditors but have, nevertheless, left open the possibility of taxpayer
support.

The proposed NPR appears to divide senior creditors' claims by maturity
and stated purpose and introduces a number of considerations for Fitch's
ratings of these systemically important institutions. Fitch notes that
some obligations, including short-term senior debt and certain other
creditors such as 'commercial lenders or other providers of financing
who have made lines of credit available to the covered financial company
that are essential for its continued operation and orderly liquidation'
are specifically differentiated from senior bondholders in the NPR.
Should this carve out provision remain as part of the final rules, Fitch
would need to consider how best it would rate the segregated obligations.

The proposed rule, as required by U.S. law, is subject to a public
comment period of at least 30 days from publication in the Federal
Register so it is important to note that material changes to the
proposal could occur before enactment. Once implemented, it is believed
that the proposed rule will serve as the road map by which the FDIC
implements its expanded authority in the resolution of a systemically
important failed institution.

In the past, systemically important institutions that became troubled
typically received some form of federal support and/or regulatory
forbearance that allowed them to continue operating through a
rehabilitation period, with creditors and shareholders often becoming
significant beneficiaries. The FDIC has used a 'least cost [to the
deposit insurance fund] resolution' approach in carrying out its
resolution activities since the Financial Institutions Regulation,
Reform and Improvement Act (FIRREA) of 1989. This approach is preserved
in the NPR and is consistent with the Dodd-Frank mandate of maximizing
the value of assets and minimizing losses. The proposed rule
additionally preserves many tools for the FDIC to use to further
incorporate the requirements of Dodd-Frank that resolutions mitigate
systemic risk and minimize moral hazard.

Fitch has long recognized through its Support Ratings the role that
support plays in global banking. In most developed markets, governments
have historically taken a dual approach to assuring the stability of
their financial infrastructure including strong regulatory oversight on
the front end and backstopping critical components of the system in
times of duress. The proposed rule for implementing Dodd-Frank preserves
a wide array of tools for the FDIC to resolve systemically important
institutions while also mitigating systemic risk and financial
contagion. Under the proposed resolution approach, select creditors may
benefit from some forms of support under certain circumstances and
where, in the judgment of the FDIC, the alternatives would ultimately
put the system at greater risk. That said, whereas bondholders, both
senior and subordinated, and even shareholders, have benefited from
support in the past, direct support for these creditors is effectively
prohibited under Dodd-Frank.

 

 

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Fri, 10/22/2010 - 14:10 | 670142 knukles
knukles's picture

Was it Shelia Bair who said it was nothing but a minor paper work problem, implying signatures on the wrong line or something like that?

Fri, 10/22/2010 - 14:11 | 670146 Rusty Shorts
Rusty Shorts's picture

 - and I thought Fitch was downgraded.

Fri, 10/22/2010 - 15:57 | 670408 Abiggs
Fri, 10/22/2010 - 14:13 | 670154 Edmon Plume
Edmon Plume's picture

The ratings agencies are still relevant?  LOL!

Fri, 10/22/2010 - 14:16 | 670162 HarryWanger
HarryWanger's picture

Exactly! They aren't relevant and no one gives a damn. Especially those buying BAC today which is up over 1% today and actually spiked when that story hit.

Fri, 10/22/2010 - 16:27 | 670446 AccreditedEYE
AccreditedEYE's picture

If you believe in this move so much, why aren't you buying equities hand over fist? And, for the THIRD time, why did you sell the rally's darling, AAPL?

Fri, 10/22/2010 - 14:18 | 670171 lizzy36
lizzy36's picture

Better than rating agencies, gasbags reporting that Larry Fink looking to offload his 35% stake in BAC.

Fri, 10/22/2010 - 20:05 | 670449 AccreditedEYE
AccreditedEYE's picture

Fink will get to buy the stake (BLK) from a distressed seller (BAC) AND go after the mortgage put backs, financed by TARP, er, I mean QE2. Oh, is he still collecting a fee for advising the government? lol

Fri, 10/22/2010 - 14:19 | 670174 Sudden Debt
Sudden Debt's picture

Why are there still rating agencies?

Fri, 10/22/2010 - 14:28 | 670208 cossack55
cossack55's picture

Because the Chinese rating agency isn't open yet.

Sat, 10/23/2010 - 07:42 | 671652 heyligen
heyligen's picture

Because they are paid for their ratings by the rated ones who like to pay for their good ratings.

Fri, 10/22/2010 - 14:19 | 670176 Mongo
Mongo's picture

Wow, does this mean the rating agencies will be upgraded?

 

This is a rhetorical question...

Fri, 10/22/2010 - 14:19 | 670179 the not so migh...
the not so mighty maximiza's picture

How dare Fitch challenge this recovery.

Fri, 10/22/2010 - 14:37 | 670246 Cognitive Dissonance
Cognitive Dissonance's picture

Burn the heretic. Quickly I might add before someone listens to what they have to say.

Fri, 10/22/2010 - 14:20 | 670182 HelluvaEngineer
HelluvaEngineer's picture

I'll just check real quick and see how high WFC surged on this news...

Fri, 10/22/2010 - 14:22 | 670193 plocequ1
plocequ1's picture

Thats just to cover their asses. Nobodys listening.

Fri, 10/22/2010 - 14:31 | 670217 cossack55
cossack55's picture

Philosophy 101

"If a rating agency falls in Boston, Chicago or New York, will anybody hear?"

Fri, 10/22/2010 - 14:51 | 670281 plocequ1
plocequ1's picture

I dont know what to listen to anymore. Im tired.

Fri, 10/22/2010 - 14:30 | 670213 jtmo3
jtmo3's picture

Ya, the ratings agencies. Is that a joke? Today should show them that there day in the sun is over. They put on watch...stock goes up. In all fairness, it's like a paper dam trying to hold back the Mississippi. The FED and free money are covering all their backs so what's the issue? It's not like they have anything to lose.

Fri, 10/22/2010 - 14:30 | 670214 williambanzai7
williambanzai7's picture


THE RATING AGENCIES

(The Adams Family Song)

WilliamBanzai7

They’re sleepy and they’re stupid,
Mysterious and crooked,
They’re all together shakey,
The Rating Agencies.

Their models are a screa-um.
When people come to see ‘em
Their living in a drea-um.
The Rating Agencies.

Moody’s

S&P

Fitch

So get a Wall Street witch’s shawl on.
Just pay their fees to get them crawlin.
We’re gonna pay a call on
The Rating Agencies.

Fri, 10/22/2010 - 18:24 | 670637 Arkadaba
Arkadaba's picture

+100 though you are starting to scare me - you understand the macro, know how to do graphics (I suck at graphics), are extremely creative ... and now ... you know rhythm and pitch :) I'm outta my league.

Fri, 10/22/2010 - 14:30 | 670216 Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture

In other News.... Fletch, er...Fitch annouced a new grading curve approved by "some drunk dude watching porn at the SEC".

This new scale is called the "Waddle Event Scale"

Waddle 1= F+, but its not your fault, its the sytem

Waddle 1.5 = C- This refers to the heavy hord of cash but poor excuses not accepted by the general public.  This will require more porn watching and some "emergency blow".

Waddle 2= to be determind soon, but somewhere between Aa- and Double Ds

Waddle 3= see Waddle 2

Waddle 4 = High gross margin of rape, pillage and burning.  Approved as TBTF, officially sponsed by Uncle Benny and the Jets.

Waddle 5: Classified but rumored to be "double secret Bb-"

That is all.

Fri, 10/22/2010 - 14:33 | 670225 williambanzai7
williambanzai7's picture

You better copyright that! LMAO

Fri, 10/22/2010 - 14:33 | 670226 cossack55
cossack55's picture

Would be nice if you could fit in some CFTC comments, Tranny Porn came up the other day.

Fri, 10/22/2010 - 14:34 | 670231 Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture

Thank you, I will have to give it some thought and revise the Waddle grading curve a bit.... WB7, may need some graphics for this one...lol

Fri, 10/22/2010 - 14:48 | 670274 williambanzai7
williambanzai7's picture

It's in the lab

Fri, 10/22/2010 - 15:12 | 670327 williambanzai7
williambanzai7's picture

Fri, 10/22/2010 - 15:15 | 670335 Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture

Bingo!!!!!!..... lol replace the bell with  Bennie's head.....or Barney Franks...

That is awesome!!!!!!!!!!!!!!!

Fri, 10/22/2010 - 15:37 | 670377 williambanzai7
williambanzai7's picture

Fri, 10/22/2010 - 15:51 | 670384 Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture

OH Shit!  that is hillarious..... alright, I'm gona have to print that one off WB!!!!!!

Perfect!

 

 

I hope you are keeping these images Will, you could put together a book on them, called it "Idiot Bankers Guide to Reality"

Fri, 10/22/2010 - 16:48 | 670476 cossack55
cossack55's picture

That WB7 is approaching genius level

Sat, 10/23/2010 - 00:49 | 671422 Zero Debt
Zero Debt's picture

Fitch-Waddell Event Scale... This has potential to be picked up by some mainstream economist and then be grossly misrepresented and thus subsequently upheld to national religion and dogma. Well done.

Fri, 10/22/2010 - 14:32 | 670222 bugs_
bugs_'s picture

Hey I'll give Fitch cool points for stepping up and saying something.  Its late in the game but they must not be avid readers of Zerohedge so we have to cut them some slack.

Fri, 10/22/2010 - 14:33 | 670227 Clark_Griswold ...
Clark_Griswold Hedge Mnger's picture

eh, no.

Fri, 10/22/2010 - 17:54 | 670608 Arkadaba
Arkadaba's picture

lmao !! joking ... right?

And self-promoting again but I have to share this. Love Canadian humour and too good not to share:

http://arkadaba.blogspot.com/2010/10/gordon-pinsent-reads-from-justin.html

 

Fri, 10/22/2010 - 14:40 | 670254 Boilermaker
Boilermaker's picture

SPX almost Negati...oh never mind.

Fri, 10/22/2010 - 15:29 | 670361 frankTHE COIN
frankTHE COIN's picture

Cut that number in half and then double it.

Fri, 10/22/2010 - 14:48 | 670276 vote_libertaria...
vote_libertarian_party's picture

Now I'm totally confused.  If these are all TBTF banks why wouldn't all of their ratings be A+++++++++++++++++++++++++++++++?

Fri, 10/22/2010 - 15:04 | 670314 Quinvarius
Quinvarius's picture

Looks like the Fed has all the banker's backs.  What a joke.

Fri, 10/22/2010 - 15:40 | 670380 jus_lite_reading
jus_lite_reading's picture

If anyone follows my other posts on Yahoo, you would know that Fitch is now three days late to my initial downgrade of BofA and JPM (Citi on watch list) Check the CDS spreads. I expect a run on the banks to start very shortly, with BofA to be hit first and hard. FDIC, let me introduce you to the needle that will break your back. Deutsche Bank and Societie Generale are next in line after the EU crisis explodes in the coming weeks. Contagion then spreads back here to JPM. But what do I know?

Fri, 10/22/2010 - 16:06 | 670418 Silverstar
Silverstar's picture

Opera ends when the fat Lady stops singing...

 

I can not hear anyone singing anymore....

 

So the Show ends soon.

Fri, 10/22/2010 - 16:28 | 670448 Chandos
Chandos's picture

The can can still be kicked a few times locally, and then globally - that is, war - before the fat lady can rest her voice...

I'm thinking of a cartoon..very simple: kid kicks a can; runs after it; next square, the can is bigger; kid scratches head; kicks can again, runs after; can is much bigger; kid is flabergasted, runs again; last square: can kicks kid. End of story.

 

Chandos

Fri, 10/22/2010 - 17:25 | 670542 Pchelar
Pchelar's picture

In Russia can kicks you?

Fri, 10/22/2010 - 17:00 | 670489 tony bonn
tony bonn's picture

"Support Ratings communicate Fitch's judgment on whether a bank would receive support from the U.S. Government should this become necessary."

more fascist banksters keep the profits, taxpayers keep the losses bullshit...

fuck fitch, fuck bac

a downgrade is totally meaningless - amid all of the upgrades the headline didn't mention.

Fri, 10/22/2010 - 17:42 | 670580 junkhand
junkhand's picture

meanwhile, on the other side of the pond.....

 

check out anglo irish's jr. bond holder credit spread blowout:  http://www.cmavision.com/market-data/

 

Fri, 10/22/2010 - 19:26 | 670769 Bob
Bob's picture

SO HOW CAN THE BANKS JUSTIFY PAYING OUT $144B IN BONUSES NOW???

THE COMPANIES CLEARLY NEED THE MONEY FOR RESERVES.

Fri, 10/22/2010 - 21:44 | 670990 TonyV
TonyV's picture

Fitch the Bitch

Fri, 10/22/2010 - 22:00 | 671029 Buck Johnson
Buck Johnson's picture

I don't trust the rating agencies at all, they where the ones that where rating all this toxic junk AAA.  Don't get me wrong, those banks are bad and should be down rated.  But the rating agencies aren't downgrading them enough, they had to do something to show that they are "doing their job".  Remember in the news hearing about these agencies and their people emailing each other saying that they would rate paper if a cow did it, etc. etc..  These places should be investigated but all of a sudden they dropped it.  And thats because if they investigate them and shine to much light on their illegal activities, it would cast doubt on all their ratings.  You know, Muni-bonds and Treasuries etc., everything that we in the US need to keep our govt. and local govt. functioning. 

We need these institutions to give our paper a positive grade, and as long as they do we turn the other cheek.

Sat, 10/23/2010 - 00:53 | 671428 Zero Debt
Zero Debt's picture

The concept of centralized rating is just as flawed as the concept of centralized banking, centralized bailouts, for at least the following reasons-

  1. High risk of becoming part of the establishment
  2. Raising the stakes in maintaining status quo
  3. Need to disseminate exponentially bigger lies to cover up past small lies
Sat, 10/23/2010 - 08:12 | 671667 Adrian Monk
Adrian Monk's picture

Good Stuff!

Mon, 10/25/2010 - 00:48 | 674417 Moonrajah
Moonrajah's picture

I guess this is Too Big To Ignore for Fitch. 

Thu, 02/24/2011 - 01:43 | 991947 shawnlee
shawnlee's picture

Ya, the ratings agencies. Is that a joke? Today should show them that there day in the sun is over. They put on watch...stock goes up. In all fairness, it's like a paper dam trying to hold back the Mississippi. The FED and free money are covering all their backs so what's the issue? It's not like they have anything to lose.
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