S&P cuts ratings of Euro banks

Standard & Poor’s downgraded Credit Suisse, Deutsche Bank and Barclays on Wednesday; reporting worries over their investment portfolios sizes and the impact of new regulations.

Credit Suisse, Deutsche Bank and Barclays rely heavily on investment banking to encourage revenue growth. Banks are still recovering from the 2008 financial crisis, which drove some economies into recession and reproduced new regulations and legal probes.

Barclays and Deutsche Bank had their ratings cut from A+ to A while Credit Suisse Group was reduced to A- from A.

The rating agency said that Deutsche Bank’s “ability to generate stable, predictable revenues” has declined.

According to S&P, Credit Suisse, the second biggest Swiss bank, gets about half of its revenue from investment banking. While Credit Suisse has taken steps to improve its risk and increase capital, it faces a “volatile revenue and earnings stream”.

The bank said on a statement: “We base today’s rating actions on our opinion of the 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 stated: ”We consider that these banks’ debt holders face heightened credit risk owing to the industry’s tighter regulation, fragile global markets, stagnant European economies, and rising litigation risk stemming from the financial crisis”.

Barclays lost 3.7% to 272.60 pence at 9:38 London time, while Credit Suisse dropped 2.6% to 25.03 francs and Deutsche Bank lost 3.4% to 30.83 euros.

S&P said on a statement: “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 outlook on Euro banks is now stable, meaning additional cuts to their credit ratings are unlikely in the near term.


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