JPMorgan, Bank of America, Wells Fargo may have ratings cut
JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp., the three largest U.S. banks by market value, may have credit ratings cut by Moody's Investors Service on concern they'll set aside more cash for loan losses.
JPMorgan, the largest U.S. bank by market value, had its ratings outlook cut by Moody's to negative from stable. Moody's said it will review the long-term debt ratings of Wells Fargo, the second-largest U.S. bank, and Bank of America, ranked third, on concern that higher credit costs may damage capital ratios.
The U.S. economy "deteriorated further" in almost all corners of the nation in the past two months as consumer spending slumped and manufacturing declined, the Federal Reserve said in its regional business survey today. Ten of 12 Fed district banks reported worsening conditions in their regional economies and respondents didn't expect a "significant pickup" until late 2009 or early 2010.
"This is pulling them in line with their peers," Jeffery Harte, a banking analyst at Sandler O'Neill & Partners LP in Chicago, said of Moody's new outlook on New York-based JPMorgan.
JPMorgan's profit fell 76 percent in the fourth quarter as rising defaults and the U.S. recession forced the bank to write down $2.9 billion of assets and boost reserves for bad loans. The bank's market value of $72.5 billion is more than Wells Fargo, Bank of America and Citigroup Inc. combined. Citigroup is the fourth-largest U.S. bank by market value.
Bank of America, based in Charlotte, North Carolina, posted its first loss in 17 years during the fourth quarter, while San Francisco-based Wells Fargo reported its first deficit since 2001. The two banks are the largest U.S. home lenders, according to the Inside Mortgage Finance newsletter.
Moody's said it expects JPMorgan's credit card portfolio to have fewer losses than other banks its size. The firm has a Tier 1 ratio of 10.2 percent and tangible equity ratio of 7.9 percent, Moody's said.
"This level of capital gives JPMorgan flexibility to take heightened credit costs and still maintain good capital ratios," Moody's Senior Vice President Sean Jones said in the statement.
Bank of America's credit rating was lowered to A from A+ yesterday by Standard & Poor's Corp. Moody's cut Wells Fargo's rating two levels on Jan. 6, citing the company's weakened capital position after its acquisition of Wachovia Corp.
Wells Fargo declined $1.01, or 9.5 percent, to $9.66 in New York Stock Exchange composite trading today. JPMorgan fell $1.71, or 8.1 percent to $19.30. Bank of America lost 5 cents to $3.59.