S&P has downgraded the key lenders of Germany, UK and Switzerland. The rating agency cited its concerns over the banks' high exposure to European investment banking, which is becoming increasingly fragile in the crisis.
Standard & Poor’s cut the ratings of the biggest German
lender Deutsche Bank, Britain’s third-largest lender by
market value Barclays, as well as the second biggest Swiss lender
Credit Suisse from “A+” to “A”.
While the three banks got the blow in three separate papersб the
verdict was the same: volatile financial markets made revenues
too shaky in the banks that get a lion’s share of their proceeds
from investment banking.
In S&P's words, Credit Suisse gets about half of its revenue
from investment banking. And Barclays’ “relatively high
investment banking weighting” was a negative drag on its
creditworthiness.
“We believe industry risk for banks with large capital
market operations has increased and is unlikely to abate in the
medium term”, S&P said.
The downside risks also included the “uncertain implications
of the unwinding of quantitative easing measures” in the US
and “credit risk owing to the industry’s tighter regulation”.
“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 report added.
The US Volcker rule, which seeks to restrict banks from wagering
on trades with shareholders cash is among the regulations that
could eat into the lenders’ profile. Stricter capital
requirements under Basel III regulations, as well as the national
bodies are also a threat, S&P said. Barclays and
Deutsche are likely to be among those most affected by new US
Federal Reserve proposals that regulate foreign banks operating
in the US.
The US Fed said earlier on Tuesday it was about to add a range of
new regulations to top the existing Basel III requirements. The
new rules will come into effect in the US in January.
S&P kept a stable outlook for the three lenders.