Standard & Poor have cut the long term counterparty credit ratings of three major European banks. Barclays and Deutsche have been cut from A+ to A while Credit Suisse has been cut from A to A-. The ratings agency said that “increasing risks that Europe's large banking groups active in investment banking face as regulators and uncertain market conditions continue to make operating in the industry more difficult”.
S&P also confirmed the A/A-1 long/short term ratings on UBS.
The outlook on all three is now stable, and so there is unlikely to be further cuts made in the near term.
Ishaq Siddiqi, market strategist at ETX Capital, says that this is a backwards-looking move by the ratings agency, who are "behind the curve" in addressing the issues faced by investment banks today. The Libor scandal and other litigation risks continue to drag on the banking sector, he says, with markets expecting further payouts to address regulators' fines. The UK's Prudential Regulation Authority's request that major British banks increase their capital ratios, meanwhile, comes as a further setback. All of which is happening in the midst of high market volatility, weak eurozone growth, and a state of caution over the Fed's unwinding of quantitative easing.
Siddiqi goes on to say that the outlook for European banks is "murky" on the whole, with management at global banks having to "balance the task of deleveraging/disposing risky/toxic assets, and shore up capital and balance sheets, all whilst obeying new banking regulations and the set up of a European banking union in the years ahead".