Banks’ credit ratings will fall to the lower investment grades as governments persuade investors that state support and bailouts of failed institutions aren’t guaranteed, Standard & Poor’s said.
“What we are generally talking about is no longer an A-rated industry in the European Union, and around the globe, we are talking about a BBB industry,” S&P banking analyst Markus Schmaus told a conference in Vienna today.
BBB is the second-lowest investment grade in S&P’s rating scale. Lenders’ credit ratings benefit from S&P’s expectation that states will prevent their failure in order to limit damage to the broader economy, Schmaus said. Should governments curb the necessity of bailing out banks to protect the public, the upward pressure on S&P’s ratings will disappear, Schmaus said.
“Those ratings, which are mostly in the A range, reflect material extraordinary government support,” Schmaus said. “All governments, all regulators are working on really cutting the link between government and bank credit quality.”
Since the financial crisis began five years ago, lenders from Citigroup Inc. to Royal Bank of Scotland Group Plc and ING Groep NV have received state support, while the global economy was roiled after Lehman Brothers Holdings Inc. was allowed to fail.