Friday, June 22, 2012

Analysts: Moody's downgrades remove market headwind

Financial stocks are bouncing back today after Moody's downgraded 15 global banks in a widely anticipated move that wasn't as harsh as some analysts and investors expected. Charlotte-based Bank of America Corp., whose long-term debt rating was cut one notch, was trading around $7.88 by late morning, up slightly from Thursday's close.

Here's how some bank analysts are responding to the downgrades:

  • Keefe, Bruyette & Woods analysts called Morgan Stanley the "clear winner" among U.S. banks after Moody's cut its debt rating by two notches instead of the three many expected. Bank of America and JPMorgan Chase & Co.'s downgrades were in line with analysts' expectations. But JPM "won second place" because investors were moderately concerned in recent weeks about a larger-than-expected downgrade after the bank announced its massive trading loss. The analysts don't expect the ratings changes to affect business at any of the U.S. banks mentioned. And they said the news Thursday removed a headwind that was weighing on bank stocks.
  • Dick Bove of Rochdale Securities said the downgrades reflect the ratings agency's "obvious" view that the banking industry is cyclical and no bank deserves high ratings at the moment. "One cannot really quibble with this conclusion," he said. But he called it upsetting that Moody's downgraded big banks at a time when many have made dramatic improvements to their balance sheets. "This makes no sense," Bove said. "If Moody's understood the dynamics of the market, they could never have done what they did."
  • Analysts from Robert W. Baird & Co. said the downgrades remove a hurdle facing the finance sector. Investors remain concerned about trouble in Europe and low interest rates, which are affecting banks' revenue, but overall, banks are looking more attractive, the analysts said. JPM remains the firm's top pick.