Moody’s Investors Service cut lowered its outlooks for Bank of America Corp (NYSE: BAC), Citigroup, Inc (NYSE: C) and Wells Fargo & Co. (NYSE: WFC) from “stable” to “negative” on certain ratings citing a new piece of legislation which will reduce the likelihood of a future bailout on banks.
Analyst Sean Jones said that the Wall Street Reform and Consumer Protection Act should result in lower levels of taxpayer support for banks that run into trouble in a research note to investors on Tuesday. The new legislation will improve the ability of regulators to liquidate banks if necessary, he wrote.
Jones said that in the near term regulators would face significant obstacles in attempting to liquidate global companies without causing economic calamity. However, he said that as the new law is implemented over the next two years, “support assumptions” from the government will likely revert to pre-crsis levels.
“Since early 2009, Bank of America, Citigroup, and Wells Fargo’s ratings have benefited from an unusual amount of support,” Jones noted. The support from the government resulted in debt and deposit ratings which are three to five ranks higher appropriate for the banks’ financial strength without government support, he noted.
Jones left the banks’ long-term and short-temr ratings the same which did not benefit from the assumption of government support.
