Would You Deposit Your Money at JPMorgan Chase or Credit Lyonnais?
Location: Tokyo
Author: Walter
Kurtz
Date: Monday, December 5, 2011
The equity markets sold off after the close last Tuesday, with Morgan
Stanley down 0.8% after hours and 3.5% correction intraday. At
least a portion of this move was driven by the S&P "refreshing" their
rating methodology for financial institutions:
Reuters: Standard and Poor's reduced its credit ratings on several
big banks in the United States and Europe on Tuesday as the result of an
overhaul of its ratings criteria.
A few surprising results: Most US and UK institutions got
their ratings reduced by one notch, while ratings for firms like
Deutsche Bank, Societe Generale, Credit Agricole, BNP Paribas, and
Credit Lyonnais were left unchanged. What changes in the
methodology would explain this?
There are two factors impacting these new ratings in addition to the
traditional "bank-specific factors" (see chart below):
1. Macro: the rating agency is focused on how strong the banking
business is in that country. Is the economy reasonably strong, how
creditworthy is the sovereign where the bank operates, how good is the
regulatory framework, how strong is the private sector, etc.
2. External support: how much is the government of that nation willing
to do what the Fed and the US Treasury did with the banking system in
the US in 08/09?
So according to the S&P, because France and Germany are rated higher
than the US based on the combination of the above criteria, there is a
downward adjustment to the US firms. The US sovereign rating
is lower, the economy is slow, the regulatory framework is getting
worse, and the government is no longer willing to support the financial
system in a crisis (in a way that say Germany, France, or for that
matter Japan or China are willing to do).
This all makes sense, but should Credit Agricole, Credit Lyonnais, and
Deutsche Bank really be A+, while JPMorgan Chase be A? With the
eurozone crisis raging, here is a simple question - would you
deposit your money at JPMorgan or Credit Agricole?
To view the graphic,
click here.
Source: Standard & Poor
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