Moody's Investors Service on Tuesday lowered its outlook to negative from stable on supported ratings for three of the nation's largest banks -- Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) -- because of a new law that will likely lower the possibility of government bailouts.
In a note to investors, analyst Sean Jones wrote that since early 2009, the three banks have benefited from "an unusual amount of support," which resulted in ratings that are three to five notches above what's appropriate for the banks' financial strength.
"The outlook change is prompted by the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act -- a law that, over time, is expected to result in lower levels of government support for U.S. banks," as MarketWatch quoted. Supported ratings are those assigned with the assumption of government bailouts if the institutions get into trouble again in the future.
Since regulators will still try to maintain economic stability in the near term, the current ratings are appropriate for now. But as the new law is implemented over the next year or two, Moody's "support assumptions" for major banks will likely revert to pre-crisis levels, or even lower, the Associated Press reported.
Moody's also said Tuesday that it's reviewing the ratings of 10 large regional banks for possible downgrades for the same reason. The banks are subsidiaries of BB&T (BBT), Capital One Financial (COF), Fifth Third Bancorp (FITB), KeyCorp (KEY), PNC Financial Services (PNC), Popular (BPOP), Regions Financial (RF), SunTrust Banks (STI), U.S. Bancorp (USB) and Zions Bancorp (ZION).
What are Penny Stocks
The lucrative and dangerous world of penny stocks.View Course »