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Banks Respond to Moody’s Ratings Downgrades

The three major banks that received downgraded ratings from Moody's Wednesday responded with disappointment and assertions of their value.

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Moody's downgraded Bank of America Corporation, Citigroup, and Wells Fargo & Company Wednesday, completing a review initiated in June. Bank of America and Wells Fargo received downgrades on their long-term credit ratings, while Citigroup received a downgrade to its short-term credit rating.

Moody's stated that the downgrades stem from its belief that the government is now less likely than prior to the crisis to support the banks if the need arises.

""Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions,"" Moody's stated.

""However, it is also 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 added.

Rep. Barney Frank (D-Massachusetts) applauded the downgrades, stating, ""I can't comment on the absolute value of Moody's ratings, but I am pleased that the rating agency recognizes that such large institutions are not ""too big to fail.""

Wells Fargo released a statement Thursday maintaining that its downgrade ""solely reflects a change in [Moody's] assumption regarding systemic support in light of the provisions of Dodd-Frank.""

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The bank also asserted that the ""action does not affect Wells Fargo's unsupported ratings, which were affirmed [Thursday] at A2 for Wells Fargo Bank, NA, and A3 for Wells Fargo & Company that have been increased three times since 2009, most recently on December 6, 2010.""

Although Moody's conceded, ""The downgrade to Prime-2 is not a reflection of Citigroup's liquidity profile, which strengthened significantly in the past two years and is robust,"" Citigroup maintained the downgrade does not reflect the company's recent progress.

""Although we are pleased that Moody's affirmed both the long-term and short-term ratings of Citibank, N.A. and the long-term rating of Citigroup, we completely disagree with Moody's change to Citigroup's short-term rating,"" Citigroup stated.

""It does not accurately reflect the significant progress Citi has made since Moody's last rated Citi more than two-and-a-half years ago. Regardless, 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.""

BofA shared a similar reaction, stating, ""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.""

BofA maintained that the downgrade was ""based on factors external to Bank of America,"" and ""In fact, Moody's explicitly stated that the downgrades do not reflect a weakening of the intrinsic credit quality of Bank of America.""

""With regard to the mortgage business, Moody's concludes that we have ample resources to absorb the additional losses we are likely to experience on these exposures,"" BofA stated.

BofA cited several improvements it has made since 2009, including almost doubling its excess liquidity to $402 billion as of the end of June, reducing risk-weighted assets by 11 percent and increasing its Tier 1 common equity by $10 billion, and growing its Tier 1 common capital ratio to 8.75 percent.

About Author: Krista Franks Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.
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