S&P cut ratings on Deutsche Bank, Barclays and Credit Suisse
Standard & Poor’s cut the ratings of the biggest German
lender Deutsche Bank, Britain’s third-largest lender by
market value Barclays, as well as the second biggest Swiss lender
Credit Suisse from “A+” to “A”.
While the three banks got the blow in three separate papersб the verdict was the same: volatile financial markets made revenues too shaky in the banks that get a lion’s share of their proceeds from investment banking.
In S&P's words, Credit Suisse gets about half of its revenue from investment banking. And Barclays’ “relatively high investment banking weighting” was a negative drag on its creditworthiness.
“We believe industry risk for banks with large capital market operations has increased and is unlikely to abate in the medium term”, S&P said.
The downside risks also included the “uncertain implications of the unwinding of quantitative easing measures” in the US and “credit risk owing to the industry’s tighter regulation”.
“Barclays, Credit Suisse, Deutsche Bank, and UBS are among the most exposed in Europe to a combination of regulatory initiatives being undertaken globally on capital market-related businesses,” the report added.
The US Volcker rule, which seeks to restrict banks from wagering on trades with shareholders cash is among the regulations that could eat into the lenders’ profile. Stricter capital requirements under Basel III regulations, as well as the national bodies are also a threat, S&P said. Barclays and Deutsche are likely to be among those most affected by new US Federal Reserve proposals that regulate foreign banks operating in the US.
The US Fed said earlier on Tuesday it was about to add a range of new regulations to top the existing Basel III requirements. The new rules will come into effect in the US in January.
S&P kept a stable outlook for the three lenders.