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Fitch Downgrades UBS, Puts Morgan Stanley, Bank of America, Goldman, etc. on Negative watch
Zero Hedge ^ | 10/12/2011 | Ty

Posted on 10/13/2011 2:17:19 PM PDT by SeekAndFind

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


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, 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:

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 ''. 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 ''.

TOPICS: Business/Economy; Society
KEYWORDS: bond; collapse; creditrating; dollar; downgrade; fitch; negativewatch; qe

1 posted on 10/13/2011 2:17:23 PM PDT by SeekAndFind
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To: SeekAndFind

To big to FAIL.

Wonder how much the Fed will flush down the toilet THIS time.

“Fed audit: $16 TRILLION in loansto banks in less than 3 years.”

Yes, that’s sixteen trillion dollars in “emergency” loans to financial institutions from the beginning of the recession in December 2007 to just one year ago. The long-awaited GAO audit shows that the Federal Reserve loaned more than the worth of the annual US economy, and not just to American banks, although US institutions got the lion’s share. Citibank was the largest beneficiary:
Of the $16.1 trillion loaned out, $3.08 trillion went to financial institutions in the U.K., Germany, Switzerland, France and Belgium, the Government Accountability Office’s (GAO) analysis shows.
Additionally, asset swap arrangements were opened with banks in the U.K., Canada, Brazil, Japan, South Korea, Norway, Mexico, Singapore and Switzerland. Twelve of those arrangements are still ongoing, having been extended through August 2012.
Out of all borrowers, Citigroup received the most financial assistance from the Fed, at $2.5 trillion. Morgan Stanley came in second with $2.04 trillion, followed by Merill Lynch at $1.9 trillion and Bank of America at $1.3 trillion.
And there is a pattern to the disbursements, too:
The audit also found that the Fed mostly outsourced its lending operations to the very financial institutions which sparked the crisis to begin with, and that they delegated contracts largely on a no-bid basis. The GAO report recommends new policies that would eliminate such conflicts of interest, and suggests that in the future the Fed should keep better records of their emergency decision-making process.

2 posted on 10/13/2011 3:15:34 PM PDT by marty60
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To: marty60

Now it is so big they will all fail:

“This morning I saw the following from Nouriel Roubini on my twitter feed -Roubini Global Economics Paper:
Are CDS Worthless Because Greece’s Exchange Won’t Trigger a Credit Event? followed by this from Chris Whalen - @Nouriel
Precisely. Fed, etc encourage CDS to generate income for TBTF banks, then the banks welch on the bets by “investors” Kleptocracy.

As anyone who follows me knows, I’m in lock step with that particular
opinion espoused by Chris. Still, the bigger and much more pertinent
question looms... Aren’t the big US investment banks carrying trillions
of dollars of unhedged exposure? Quick answer: Yeah!”

“The top four banks with the most derivatives activity hold 94% of all
derivatives, while the largest 25 banks account for nearly 100% of all
contracts. Overall, the US banks derivative exposure is $249 trillion and is more than four folds of World’s GDP at $58 trillion.”

3 posted on 11/03/2011 3:38:42 PM PDT by TruthConquers (Delendae sunt publicae scholae)
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To: TruthConquers

Well here we go. I really believe that the rumors of War with IRAN are real.

Would Zero start a massive War with Iran to attempt an FDR recovery. (Actually Fascist policy) My belief is yes. Nothing he does works, food costs are soaring. Will we see RATIONING like my Mothers Generation?

I don’t mean to be pessimistic but if someone can explain to me how this will not happen, please enlighten me.
When, not if, we get downgraded again, will there be a run on the banks as in 29? Just asking questions.

4 posted on 11/03/2011 4:31:33 PM PDT by marty60
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To: marty60

Would Zero start a war to keep in office and distract the country from its woes? Yes, he would.

Food costs soaring, rationing, gas and food, would not be out of the realm of possibility. And no, you are not being pessimistic. The wise person at least perceives when trouble is approaching, and does what they can. The biggest question seems to be how long can all of this go on? Gee, the housing warnings were going on for years before it blew up. Doom and gloom about the financial sector of this country had been going on long before I started to pay more attention in 2008. There was warnings of bank runs then.

As to the banks and bank runs, in a digital age it could be a bit different. IF there is systemic failure, the ATMs and debit and credit cards won’t work, so having some cash on hand is part of prepping. The real bank runs seem to happen at the bank level now. MF Global’s bankruptcy was essentially a run on a hedge fund. They were full of PIIGS debt (debt of the nations of southern Europe) and they were called on it.

I think the biggest danger will be the FED does do more printing, and prices keep going up, and THEN the people start to lose confidence in the fiat money, that is when things will go crazy. But when that will happen is a huge guess at this point. The FED and those with their hands on the levers of power, won’t exactly be giving warnings.

The best place I have found for financial news and heads up is at It took me awhile to understand some of what they talk about there, but read the comments, and within a month or two, you will catch on. If any danger signs start showing up, they will catch it.

I hope I have answered your questions, ;)

5 posted on 11/03/2011 5:03:50 PM PDT by TruthConquers (Delendae sunt publicae scholae)
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To: TruthConquers

Thank you so much for your info and especially the link.!!!!

6 posted on 11/03/2011 5:08:46 PM PDT by marty60
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To: marty60

Thank you, just trying to get as many Freepers informed and aware as possible.


7 posted on 11/03/2011 5:12:07 PM PDT by TruthConquers (Delendae sunt publicae scholae)
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