The Zacks Analyst Blog Highlights: HSBC Holdings, JPMorgan Chase, Bank of
America, Citigroup and Goldman Sachs Group
CHICAGO, Oct. 12, 2012
CHICAGO, Oct. 12, 2012 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include HSBC Holdings plc (NYSE:HBC),
JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC),
Citigroup Inc. (NYSE:C) and The Goldman Sachs Group Inc. (NYSE:GS).
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Here are highlights from Thursday's Analyst Blog:
Fitch Affirms Ratings for GTUBs
Providing great relief to the financial sector, Fitch Ratings has reiterated
the long and short term Issuer Default Rating (IDR) of 12 Global Trading and
Universal Bank (GTUB) peer group (formed last October and includes 13 major
securities trading and universal banks). Only the review of HSBC Holdings
plc's (NYSE:HBC) ratings has yet to be completed, which would be done in the
forthcoming two months.
Among the GTUBs whose ratings have been affirmed are
JPMorgan Chase & Co.
Bank of America Corporation
The Goldman Sachs Group Inc.
Moreover, Fitch has re-affirmed the respective outlook for all, except
JPMorgan. JPMorgan's outlook was revised to 'Stable' from Rating Watch
As per Fitch's rating methodology, a bank's IDR is either its Viability Rating
(VR), or its Support Rating Floor (SRF), whichever is higher. VR reflects the
company's inherent creditworthiness while SRF is Fitch's view on the
probability of a bank receiving sovereign support.
The rating agency stated that of the 13 GTUBs, seven have their SRFs higher
than VRs. Therefore, this makes their IDRs susceptible to the changes in
Fitch's perception regarding chances of government support in case of failure.
Determinants of VRs
In order to determine the credit worthiness of GTUBs, Fitch has taken into
consideration certain fundamentals (capital ratios, declining risk weighted
assets, stabilizing credit quality and improving liquidity) as well as macro
economic conditions. The improvement in these is considered as a positive
Nevertheless, Fitch stated that GTUBs are likely to face challenging macro
economic conditions and volatile capital markets (mainly in Europe) along with
increasing regulatory burden and ambiguity. All these are expected to continue
to pressurize earnings in the next couple of years. Though GTUBs are trying to
streamline their businesses through restructuring and cost reduction
initiatives to somewhat mitigate the pressure, investment in high growth areas
Further, given the size and complexity of their operations, GTUBs also face
legal, operational and reputation risks. Though these are difficult to be
quantified, they continue to adversely impact the banks' earnings. Moreover,
Fitch commented that GTUBs' overall capital base continues to improve. Though
the leverage ratio for U.S. banks remains strong as compared to their European
counterparts, the latter is now trying to improvise.
Underlying Principles for SRF
According to Fitch, the overall global policy is to stay away from fully
supporting Globally Systematically Important Financial Institutions (G-SIFIs),
in case of default. However, the discussions pertaining to this policy are
making headway at an uneven rate. The rating agency anticipates that the
regulators will continue to provide support to the G-SIFIs until a more
advanced and aligned regulation is in place.
Though Fitch is closing watching the developments pertaining to continuing
discussions related to providing support and bail-in, at present it has given
'A+' SRFs for German and French GTUBs while it furnished 'A' SRFs for GTUBs
based in U.S., UK and Switzerland. The slightly lower SRFs for U.S., UK and
Switzerland banks signifies that there is less political will in these
countries to provide government support to banks in case of default.
This is the second major ratings affirmation/revision announcement this year.
Earlier in June, Moody's Investor Services announced the credit ratings
revisions for major global banks that dealt a blow to the already stressed
Though the economic situation is still the same (challenging global economy
recovery and uncertainty in the Euro-zone along with signs of slowdown in
major emerging economies like India and China), the news of the rating
affirmation by Fitch is a big relief for the banks. For GTUBs already facing
higher funding costs and operating expenses, this reiteration will be a
Further, this will enhance investors' confidence in the overall financial
sector. Also, this might help the financial institutions to brace themselves
better for another financial crisis. Most importantly, this could ultimately
result in less involvement of taxpayers' money in the bailout of troubled
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