Over the next 18 months, debt ratings of JPMorgan Chase & Co. (JPM) and Bank of New York Mellon Corporation (BK) might be lowered by Moody's Investors Service, the rating arm of Moody's Corp. (MCO). According to the rating agency, both these banks might receive less government support for their bailout in the future, which would be the prime reason behind the possible rating cut.
Though the rating agency confirmed JPM’s senior debt rating at ‘Aa3’ and BK’s at ‘Aa2’, it imparted Negative outlook to both the banks. This, in turn, reflects that the ratings might be cut over the next 12–18 months. In July, the rating agency had put both these banks’ ratings under review for further downgrade.
Additionally, the rating agency stated that it affirmed the senior debt ratings of JPM and BK as it maintained its rating on the U.S. government at ‘Aaa’.
The rating agency also commented that by giving Negative outlook to JPM and BK, it is trying to match the banks’ outlook with its Negative outlook on the U.S. debt. However, it anticipates that due to various regulatory changes after the implementation of the Dodd Frank Act, these important financial institutions might receive less support from the government.
Apart from JPM and BK, other banks imparted with Negative outlook by Moody’s include Goldman Sachs Group, Inc. (GS) and State Street Corp. (STT).
We believe that the negative outlook for JPM and BK would lower investors’ confidence in their respective stocks. Also, debt ratings downgrade would lead to higher borrowing costs for both the banks.
Currently, JPM retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating, while BK retains a Zacks #4 Rank, which implies a short-term ‘Sell’ rating.
BANK OF NY MELL (BK): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
MOODYS CORP (MCO): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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