Moody's cuts ratings on 3 banks

September 21, 2011: 3:57 PM ET
Bank of America, Wells Fargo, Citigroup

NEW YORK (CNNMoney) -- Moody's has declared the era of "too big to fail" over.

In yet another blow to the financial sector, Moody's Investors Services announced the downgrade of Citigroup, Wells Fargo, and Bank of America -- three of the United States' top banks.

Among the primary reasons: the U.S. government is less likely to step in to save a troubled financial institution.

"It is more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute," Moody's wrote in its downgrade note of Wells Fargo's stock.

Moody's downgraded Bank of America (BAC, Fortune 500)'s long-term debt two notches to Baa1, Wells Fargo (WFC, Fortune 500)'s long-term one notch to A1, and Citigroup (C, Fortune 500)'s short-term debt one notch to Prime-2. Moody's offered a negative outlook for all three.

"While we disagree with their conclusions and we believe our ratings should be higher, to minimize any potential impact of this decision on our business, we have been managing our liquidity carefully and we have prefunded our planned borrowing needs for the year," said a Bank of America spokesman.

More layoffs looming on Wall Street

With the exception of embattled Bank of America, which saw its shares fall 4.2% following the downgrade, the other banks' investors appear to have largely shrugged off the news. Wells Fargo's shares edged up 1%, while Citigroup's stock slid 0.2%.

"We believe that less than 1% of Citi's funding will be affected by the Moody's decision and the downgrade will not affect the short-term and long-term funding of our bank vehicles," said a Citigroup spokesman.

Moody's said that the U.S. government might be more likely to allow a large financial institution to fail because it the contagion could be viewed as limited.

The ratings agency also cited Dodd-Frank legislation as a reason that the U.S. government could opt for failure. The post-financial crisis legislation gives the FDIC a method to liquidate failed banks and hand over losses to bondholders.

Bank of America received the steepest downgrade from Moody's because of its exposure to problematic residential mortgage loans. Still, the ratings agency commended Bank of America's leadership for its "significant improvements to its capital and liquidity positions." To top of page

Index Last Change % Change
Dow 16,805.41 127.51 0.76%
Nasdaq 4,483.72 30.92 0.69%
S&P 500 1,964.58 13.76 0.71%
Treasuries 2.27 -0.00 -0.09%
Data as of 3:55am ET
Company Price Change % Change
Ford Motor Co 13.78 -0.62 -4.31%
Microsoft Corp 46.13 1.11 2.47%
Apple Inc 105.22 0.39 0.37%
Bank of America Corp... 16.72 0.12 0.72%
Yahoo! Inc 43.50 0.90 2.11%
Data as of Oct 24
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.98%3.95%
15 yr fixed3.05%3.05%
5/1 ARM3.32%3.71%
30 yr refi4.05%4.03%
15 yr refi3.12%3.11%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.