Just when you thought the private sector is ″doing just fine″, hold on to your cash! Moody′s is preparing to hit some 22 banks with downgrades to their bond ratings. The list of banks to be downgraded is impressive. In the United States, Morgan Stanley may get the sharpest downgrade, with its rating cut by 3 notches. Bank of America, Goldman Sachs, JP Morgan Chase, Wells Fargo and Citigroup all face downgrades. A number of European banks are also targeted for downgrades, many of which have already been hit earlier this year. In February, German and Austrian banks felt the pinch, followed by banks in Italy and Spain in the last two months. Moody′s is also downgrading the ratings for more Greek banks as well as two in Cyprus.
Recently, the stock markets have been improving with news about more government bailouts and stimulus spending. Spain is slated to get about 125 Billion Euros to shore up their banks. No word yet what they will need to help with their own sovereign debt crisis. Italy is also looking worse and the upcoming elections in Greece may determine whether the Greeks will stay in the European Union. So the overall situation not only remains very unsettled, but seems to be leaning more and more to another economic crisis.
The recent elections in France are already casting much doubt on the future of the EuroZone. The austerity measure to raise the retirement age from 60 to 62 by Nicolas Sarkozy has now been reversed by the new French President, Francois Hollande. How this will play in Germany when they are asked to pony up more money to bailout their neighbors seems obvious. If Angela Merkel wants to stay in power, she′ll have no choice but to reject future bailout schemes.
So look for a summer of discontent as markets react to the latest series of bank downgrades by Moody′s to their bond ratings. All of the largest banks in the U.S. face having their ratings cut with Morgan Stanley taking the biggest hit of a triple downgrade. Some major banks in the European Union are also under the gun, along with many smaller, but key banks.