Moody's cuts debt ratings for Bank of America, Wells Fargo
Moody's Investors Service lowered the debt ratings for Bank of America Corp, Wells Fargo & Co and Citigroup Inc, saying it is now less likely that the US government would step in and prevent the lenders from failing in a crisis.
The ratings firm said yesterday it believed the government was likely to provide some level of support for financial institutions, but was also more likely now than during the 2008 financial crisis to allow a large bank to fail should it become financially troubled.
The downgrades were widely expected after the three banks were placed on review by the ratings agency in June.
They also stem partly from new laws that went into effect under the Dodd-Frank Wall Street Reform Act that was passed last year.
The new law ended the possibility of the government bailing out a large financial firm and creates a way to liquidate failed financials.
Bank of America was the worst hit -- with a two-notch downgrade in its key long-term debt ratings to Baa1 from A2.
Wells Fargo's long-term debt was downgraded by one notch to A2 from A1, while Citigroup's rating remained the same at A3. However, Moody's downgraded Citi's short-term debt.
Moody's also downgraded the rating on both Bank of America and Wells Fargo for deposits. All of the ratings are investment grade.