Fitch Downgrades UBS, Many Others, Puts Morgan Stanley, Bank of America, Goldman, BNP, Deutsche Bank, SocGen And Others On Watch Negative

Tyler Durden's picture

Since one can not get a downgrade of a bank during market hours for fears of springing who knows what circuit breakers, Fitch had to wait until just after the market close to release its latest market surprise which consisted of a "watch negative" announcement on the following banks Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, Goldman, Morgan Stanley; others it just slashed some by multiple notches, among which: Landesbank Berlin IDR downgraded to A+ from AA-; Lloyds Banking Group IDR downgraded to A from AA-; RBS IDR downgraded to A from AA-; and most importantly UBS IDR downgraded to A from A+. The reason for the action: "the ongoing Eurozone crisis continues to feed intense market speculation regarding the potential or bank recapitalisation schemes. Therefore for the near term the agency is maintaining a 'single A' range support rating floors for banks in its highest rated Eurozone countries." The Euro is not liking this announcement one bit.

The critical UBS downgrade:

LONDON/MILAN, October 13 (Fitch) Fitch Ratings has downgraded UBS <MLPI.P> AG's (UBS) Long-term Issuer Default Rating (IDR) and revised its Support Rating Floor (SRF) to 'A' from 'A+'. The Outlook on the Long-term IDR is Stable.

 

At the same time, the agency has downgraded UBS's Short-term IDR to 'F1' from 'F1+' and affirmed UBS's Support Rating at '1'. UBS's Viability Rating (VR) of 'a-' remains on Rating Watch Negative (RWN). This rating action has no impact on the 'AAA' rating of the outstanding covered bonds issued by UBS. A full list of rating actions is at the end of this comment. The rating action on UBS and its subsidiaries is part of Fitch's broader review of changing sovereign support in developed countries announced in separate comments titled 'Rating Banks in a Changing World' and 'Fitch Comments on Support for Euro Banks; Takes Various Support-Driven Rating Actions' both published on 13 October 2011 and available on www.fitchratings.com.

 

Since the intervention of the Swiss authorities in late 2008, UBS's IDRs have been based on Fitch's view of the availability of sovereign support. As a result, the Long-term IDR has been at the SRF. Reflecting the particularly close ties between UBS and the Swiss government following the transfer of a USD38.7bn portfolio of assets to the Swiss National Bank (SNB) StabFund in late 2008 and early 2009, UBS's SRF has since early 2009 been rated one notch above the SRF for Credit Suisse AG (CS), the other large, systemically important Swiss bank.

 

Fitch's rating action on UBS's SRF reflects Fitch's view that the one notch uplift for close affiliation with the Swiss state is no longer warranted and the agency has therefore lowered UBS's SRF to 'A' in line with its SRF for CS. Consequently, Fitch has downgraded UBS's Long- and Short-term IDRs to 'A' and 'F1' respectively. UBS's Viability Rating (VR), on Rating Watch Negative (RWN) since 16 September 2011 (see "Fitch Places UBS's Viability Rating on Rating Watch Negative; Affirms IDRs" dated 16 September 2011 at www.fitchratings.com), remains unaffected by today's rating action. UBS's SRF and IDRs continue to be based on Fitch's view that there is an extremely high probability of support for UBS from the Swiss authorities at least until the global financial sector has stabilised and resolution regimes in Switzerland and abroad are in place. In Switzerland, legislation attempting to avoid taxpayers having to bail out one of its systemically important banks again ("too big to fail", TBTF, legislation) is currently being finalised. The legislation centres around strengthening banks' capital positions, imposing more stringent liquidity requirements, improving risk diversification and adjusting banks' organisational set-up to allow for the protection of systemically important utility functions in the event of a bank insolvency or threatened insolvency.

Full release on the downgrade watch:

Fitch Reviewing Global Trading and Universal Banks; Places Seven on Rating Watch Negative

In conjunction with a broad assessment of the ratings for the largest banking institutions in the world, Fitch Ratings is conducting a review of the global trading and universal banks in its rating portfolio. As part of that review, Fitch has placed the Viability Ratings (VRs) of seven and the long-term Issuer Default Ratings (IDRs) of six global trading and universal banks on Rating Watch Negative. At the same time, Fitch has placed the short-term IDRs of four of the banks on Rating Watch Negative.

The banks impacted by these rating actions are as follows:

  • Bank of America
  • Barclays Bank plc
  • BNP Paribas
  • Credit Suisse AG
  • Deutsche Bank AG
  • The Goldman Sachs Group, Inc.
  • Morgan Stanley
  • Societe Generale

Fitch expects to resolve the Rating Watch Negative within a short time frame and to take corresponding rating actions where warranted.

A list of each bank's key impacted ratings follows at the end of this release. Full lists of impacted ratings are contained in the individual rating action commentaries on each of these firms, which are available at 'www.fitchratings.com'. Barclays Bank plc's rating action was addressed earlier today; for details see 'Fitch Lowers UK Support Rating Floors; Downgrades Lloyds, RBS to 'A''.

Fitch expects that any downgrades of these banks' VRs would in most cases be one notch and at maximum two notches. Most actions on the long-term IDRs will be limited to one notch as IDRs will not fall below the banks' Support Rating Floors when applicable. Short-term IDR implications will also likely be a one-notch downgrade for those banks whose ratings are on Rating Watch Negative. It also possible that certain banks could have their ratings affirmed at current levels. Fitch also expects that many of these ratings should revert to Stable Outlooks upon resolution of the Rating Watches.

The resolution would be based on the conclusion of Fitch's review of the issuers. Fitch expects to engage with the issuers and review any new or additional information that is relevant to their ratings. Fitch will also consider the absolute and relative ratings of each issuer put on Rating Watch today in the context of other global financial institutions.

The placement on Rating Watch Negative of these global trading and universal banks' VRs reflects Fitch's view that these institutions' business models are particularly sensitive to the increased challenges the financial markets are facing. These challenges result from both economic developments, particularly in the euro area, as well as a myriad of regulatory changes.

Fitch also notes that these actions are not tied to any specific earnings information as this review has been ongoing for some time. The review is motivated by Fitch's evolving concerns about aspects of these business models and the structural challenges they face, particularly during periods of market stress.

However well-managed, the structural aspects of their funding, earnings, and leverage, predispose trading and universal banks to greater vulnerability to market sentiment and confidence, particularly during periods of exogenous financial stress. Furthermore, the complexity of their business models and exposure to fat tail risk make it more difficult to assess the size of loss that could emerge rapidly from unexpected events.

These seven banks are among the largest global trading and universal banks. Trading businesses exhibit high reliance on short-term wholesale funding and to varying degrees what Fitch views as more volatile earnings than commercial banking, and with more opaque risk. These factors drive Fitch's expectation of more robust liquidity and higher capital than commercial banks to retain ratings in the single 'A' range. Fitch considers it highly unlikely for a bank whose business model is strongly weighted to trading operations to remain in the 'AA' range, and any universal bank rated in that range would have to maintain particularly strong levels of retail funding, liquidity and capital. The seven banks remain highly rated firms that largely have strong credit profiles.

While Fitch considers dependence on trading activity and particularly volatile trading activity to differ among this group of banks, it is also Fitch's view that a number of additional factors need to be taken into the balance. Among these, Fitch looks at the dominance of a bank's position in various markets, track records established in each business and barriers to entry and specific challenges facing the commercial banking arms of universal banks. Given the complexity of the business, the degree of transparency achieved in external reporting is also an important factor in Fitch's rating assessment.

Fitch recognizes that these institutions are diverse both in terms of product scope and geography and are among the largest in the world. However, recent history demonstrates that large banks can fail. Furthermore, diversification can have both positive and negative implications. Fitch believes that it is the tendency for asset correlations to converge during times of stress, as witnessed during the 2008 financial crisis. While this is not a new discovery, Fitch believes it is still important to highlight in the context of this rating comment.

Importantly, Fitch also recognizes that individual firms demonstrate varying degrees of resiliency to these concerns, which is driven in part by such key intangible factors as corporate governance, management depth and experience, risk management culture, and so forth. Fitch will continue to weigh these factors in its assessments.

Fitch's rating review includes a broader base of global trading and universal banks. Fitch believes that the institutions placed on Rating Watch Negative are more susceptible to rating downgrades because of their relative sensitivity to the rating attributes outlined above and their relatively high current ratings. Also, some of these banks face challenges from developments in the euro area.

Fitch has taken no action on Citigroup, Inc.'s and JPMorgan Chase & Co.'s VRs, Long-term IDRs and Short-term IDRs. Rating actions on IDRs of UBS AG and The Royal Bank of Scotland plc were taken as a result of revisions to the Support Rating Floors. (Please refer to 'Fitch Comments on Support for Euro Banks; Takes Various Support-Driven Actions' dated Oct. 13, 2011 and the individual issuer commentaries for additional details.) The VR of Bank of America Corporation was also placed on Rating Watch Negative as part of this broader review, and additional ratings drivers are discussed in its individual issuer commentary.

Fitch highlights that other firms are not immune to these challenges, and many other financial institutions, particularly in the euro area have also been subject to negative rating actions by Fitch this week. For more details on Fitch's European rating actions, please refer to the following releases:

--'Fitch Takes Rating Actions on Major Spanish Banks Following Sovereign Downgrade', Oct. 11, 2011;

--'Fitch Takes Rating Action on Major Italian Banks Following Sovereign Downgrade', Oct. 11, 2011;

--'Fitch Comments on Support for Euro Banks; Takes Various Support-Driven Rating Actions', Oct. 13, 2011;

--'Fitch Places Five Major European Commercial Banks on Rating Watch Negative', Oct. 13, 2011.

Furthermore, Fitch acknowledges that many of these global financial institutions demonstrate stronger fundamental financial metrics than they had preceding the start of the financial crisis in 2008, and some have lower ratings than they did at the time.

Nevertheless, Fitch considers the potential for these negative rating actions to be warranted by the structural challenges these firms' business models face. These challenges stem from intensified regulation, heightened funding costs, intense competition to remain a top tier player, and changing risks in an industry of constant and rapid innovation and interconnectedness with developments in the rest of the industry and the global economy.

For additional perspective see the individual rating action commentaries for each of these institutions and the report 'Rating Banks in a Changing World', dated Oct. 13, 2011.

Fitch has placed the following ratings on Rating Watch Negative:

Bank of America Corporation

--Viability Rating (VR) 'a-'.

Barclays Bank plc

--Viability Rating 'aa-';

--Long-term IDR 'aa-';

--Short-term IDR 'F1+'.

BNP Paribas

--Viability Rating 'aa-';

--Long-term IDR 'aa-'.

Credit Suisse AG

--Viability Rating 'aa-';

--Long-term IDR 'aa-';

--Short-term IDR 'F1+'.

Deutsche Bank AG

--Viability Rating 'aa-';

--Long-term IDR 'aa-'.

The Goldman Sachs Group, Inc.

--Viability Rating 'a+';

--Long-term IDR 'a+';

--Short-term IDR 'F1+'.

Morgan Stanley

--Viability Rating 'a';

--Long-term IDR 'a';

--Short-term IDR 'F1'.

Societe Generale

--Viability Rating 'a+'.

Additional information is available at 'www.fitchratings.com'.

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Threeggg's picture

That has to be good for a 300 point gain tomorrow !

jdelano's picture

shorts have some deep pocket friends on their side all of a sudden.  Ah brahim, don't fight the trading range.  

Divided States of America's picture

Its perfectly timed after market closes at 4pm like all those other ignored items like Sovereign downgrades during earnings season with blowouts like GOOG's numbers being the main attraction.

ZerOhead's picture

Hey...wasn't Fitch one of those outfits rating subprime as triple "A"?

Here... let me help simplify their analysis...

Nevertheless, Fitch considers the potential for these negative rating actions to be warranted by the structural challenges these firms' business models face. These challenges stem from intensified regulation (possible implementation of minor regulation), heightened funding costs (people rushing to withdraw their cash), intense competition to remain a top tier player (too many sharks not enough fish), and changing risks in an industry of constant and rapid innovation and interconnectedness (high frequency and zero sum robotrading) with developments in the rest of the industry and the global economy (forthcoming 'industry' and global economic collapse).

Hope that helps...

max2205's picture

And CitiBank and JP Morgan are ok. OMG

FITCH is French right, they are downgrading everyone before France loses AAA so then they don't look as bad

Games

LookingForTruth's picture

Yep, best looking horse in the glue factory....

Archduke's picture

@max2205: FITCH is French right, they are downgrading everyone before France loses AAA so then they don;t look as bad

uhm.  SocGen and BNP Paribas are by far the two most massive French banks in market cap and investment banking weight...

Strider52's picture

This just in from Reuters:

UBS, Moody's, S&P, MS, BAC, Goldman, BNP, Deutsche Bank, SocGen and others just downgraded Fitch to C--.

junkyardjack's picture

Only a negative watch and here I thought they were bankrupt 

Republicae's picture

LOL....All fractional reserve banks are just a bank run away from bankruptcy!

Divided States of America's picture

Actually this may help widen credit spreads for all these banks in time for them to report blowout earnings next quarter like JPM did today....damn theres a motive in everything nowadays.

macholatte's picture

Downgrades = Bullish

War = Bullish

Terrorist Attacks = Bullish

3T Euro Print Debt Bailout = Bullish

 

Why fight it?

jdelano's picture

bullostrich:  a person who dumps their savings in the market and buries their head in the sand, refusing to acknowledge that each successive cycle of crash and counter-trend rally is steadily eroding away at their wealth...

 

When your bull market finally comes, bud, will you have enough cash on hand to dollar cost average the 40% decline you took on the way down.  WTFU.  

kito's picture

No jdelano. Bullostritch is right. The bull market is here. The downgrades are completely irrelevant. Its all bullish because the banks are mere subsidiaries of sovereigns. The majors will all stay alive thanks to their host countries. You can't fight this. You're the one who has his head in the sand. No crisis will come of this because moral hazard has wiped sanity from the earthi

Republicae's picture

Yes, the illusion of massive "quantitative easing", certain to create a bull market in just about anything...that is until the "printing" is halted by the central bankers...then boom becomes bust and the scam is once again revealed for what it really is...just another illusion with no productive capital creation.

unununium's picture

> until the "printing" is halted by the central bankers

No, until the "printed" won't buy anything anymore.

It goes on longer than anybody thought it could becuase of huge productivity and efficiency increases brought on by the Internet.

The money printers are seeing to it that they get all the benefits from those advances, as they have from every other positive innovation since banks emerged from the primordial slime.

Stubborn idle capacity also contributes.  Inflation is hard to produce these days.

 

Republicae's picture

Actually, inflation is doing pretty well, except if you are reading the offical government CPI numbers, then it looks so tame and sedate, those numbers sure work well for those in power. 

The fact of the matter is that if you look at the money supply, at least what is being reported by the FED, it is substantial...price inflation is lagging, as it always does, behind monetary inflation...hold on to your dollars and see their value vaporize into air.

jdelano's picture

I'm up 35% for year on puts and gold.... How's your book doing. Hahahahaa--morons.

calltoaccount's picture

ehhh, did you mean sovereigns are mere subsidiaries of banks and bankstas? 

Pure Evil's picture

USS Economic Recovery

 

 

Shipmate:

Sir, we're besieged on all sides by torpedoes of economic depression, bank insolvency, 23% unemployment, housing foreclosures, real estate market in turmoil, European economic market about impolde, trillion dollar deficit spending, no banks lending, Main Street loosing entrepenuers, Obamavilles opening nationwide, State and local governments insolvent, some declaring bankruptcy. What are we to do Captain?

Captain:

Damn those torpedoes, bull market ahead!!

Dow 36,000 bitchez!!!

Ruffcut's picture

Does fitch bitch do this for some sort of validity??

THey purposely ignored their core business of assessing asset value.

Now they come out and downgrade the obvious and expect some respect.

My respect for these asshats is nil to negative. They deserve to get thrown down and shit in their collective mouths. I like the cramer entertainment value more so.

zebra's picture

don't be modest. make it 500.

vast-dom's picture

At this stage of game if the headlines ran STOCK MARKET CRASH that'd be good for SP 2k run!

 

The sociopathic idiots need to literally blow the fucking world up to put a dent in this motherfucker!

disabledvet's picture

actually i agree with that.

Hansel's picture

Fitch After Hours Tape Bomb FTW!  Boooooooosssssshhhhhhhhhh...............

AldousHuxley's picture

downgrade below AAA rating should forbid them from acting as primary dealers. Reason? not credit worthy. Go borrow from responsible banks.

LongSoupLine's picture

Maybe they're "no doc" Primary dealers.  What could happen right?

knukles's picture

No birth certificate, transcripts, associatons, friends, travel disclosure.
Sounds acceptable to me.

Cliff Claven Cheers's picture

A Kenyan, a Communist and a Muslim walk into a bar.  The bartender says what can I get you Mr. President.

disabledvet's picture

how 'bout trading at a penny a share like Lehman? THEY'RE SHAMELESS I TELL YOU! I mean "DO YOU EVEN HAVE A PENNY IN YOUR POCKET?" (Answer: "No...I have a MILLION pennies in my pocket!")

PicassoInActions's picture

bulish for something, tough not sure for what.

Short Euro at least till weekend.

 

PicassoInActions's picture

why all this gaygrades, downgrades are after hours. and upgrades are during the market hours.

That's is strait manipulation. We should be down today good few hundred points

Threeggg's picture

They knew Google was reporting afterhours today. If you have bad news release it when things are good. (OXY) 

fuu's picture

This deserved the Donkey Kong pic.

knukles's picture

B B B B B Bu But But But, Not Goldman?!?!?!
My Lord, they're the savyiest, smartest guys in the room, if anything's being done super, dooper, exceedingl,y awesomely, great, well and near God's Perfection as They Alone Have Been Anointed to Do God's Work, how in His Name can they be at risk?
They're only a Counter-Party and have laid off all their risks onto other unwise, unassuming, silly, slow, dolt, like slugs of dubious at best Counter-Parties.
See, Goldman has laid off their Counter-Party risks on all the other fellas on the list.
So that means that they'll go broke and not Goldman, and so when Goldman goes to collect, uh, a-hem, uh, it ah, well, doesn't it?  I mean?  Like uh....
Oh fuck.

Oh regional Indian's picture

They are on the list. Goldman Sachs Group.

ORI

knukles's picture

That's what I mean!  They're Whiter than Drifting Snow, Cleansed of All Risk via the Other Guys.
They Should Be Upgraded to AAAAAAAAAAAAAAAAyeah.

They should be exempt from this folly, for they Do God's Work.

Where the fuck is MDB?
Gotta hear his tripe on this blessed event.

Oh, the irony of it all.  Fuck over the Counter-Parties so they loose their ratings...  There is Karma, Payback, a Group Serious Corn-Holeing for All Concerned.

Ruffcut's picture

I came up with the ruffcut bank rating system.

There are several  classes

Fuckyou++

Shitbag-- with further negative watch.

DoubleDoubleupthepoopshoot- for the bank that actually is being audited.

CharlesPonzi You B my hero Plus plus - "we never looked too hard at your operation, but appreciate your subscription contributions."

If I had this type of business, I would be embarrassed to show my face in public. amerika lives and strives to be one country under greed.

knukles's picture

... under greed, invincible with lawlessness and injustice for those fucking wired into the Leviathian.

Black Forest's picture

On Thursday evening? Why not Friday?

Western's picture

That's when the really ugly news will come.

UP Forester's picture

You mean all the doubleplusgoodthinkful news?

junkyardjack's picture

This is unamerican

prains's picture

This is unamerican

 

But it is Oligarkian

IrritableBowels's picture

I don't know what that means anymore.

Dick Darlington's picture

Noone cares, Google was BETTER THAN EXPECTED! Yeah, can u believe it, BETTER THAN EXPECTED!!! Banks get downgraded en masse, ditto for sovereigns but who cares when Google one quarter result WAS BETTER THAN EXPECTED!!!

s2man's picture

Hey Dick. I'll trade you 52 of my avatars for one of yours.

tekhneek's picture

Don't do it Dick.

Think of the premiums!!

knukles's picture

Take his pre-65's and give him a inventory reciept before you loan it out.