S&P's New Credit Rating System May Lead to Mass Downgrades for Banks
Jan 11th 2011 3:51PM
Updated Jan 11th 2011 4:27PM
Standard & Poor's is revamping its credit-rating methodology for banks and financial institutions in a way that may cause about 40% of rated banks to get a downgrade, The Wall Street Journal reported Tuesday.
The ratings service intends to make banking industry ratings more similar to those it uses for other sectors, illustrating S&P's efforts to have its assessments better reflect the factors that played such a large role in the recent banking crisis, the newspaper said. Earnings and capital performance, risk position and ability to handle liquidity are among the criteria that will be measured in the new ratings system.
The new standards may result in about 50 of the 138 banks rated by S&P receiving credit-rating downgrades, with 10 of those getting knocked down at least two notches, The Journal said, citing proposal documents from S&P. About 30 of the rated banks may receive upgrades.
S&P will be accepting public comments on the proposed ratings until March, the Journal reported.