12 major banks downgraded

In a swiftly changing financial landscape, it was only a matter of time before the ratings agencies started downgrading banks.

Well, they did that today.

CNBC Link: Twelve Major Banks Have Credit Ratings Cut by S&P


Bloomberg Link: Goldman, UBS, Deutsche, Morgan Stanley Lowered by S&P (Update2)

After the various events that have unfolded over the last year or so beginning with subprime crisis, Bear Stearns and Lehman collapse, interest rate cuts, falling oil price, plummeting stock indexes, Fannie Mae and Freddie Mac collapse, Merrill Lynch acquisition by Bank of America, Goldman and Morgan Stanley turning into commercial banks, bank bailouts and most recently the Madoff securities fraud, the list does not seem to end. Also included in this long list of events is the Auto Bailout passed today for USD 17.4 billion.

If such large scale state intervention occurs across US, then other countries will also have a serious impact on trade, inflation and growth of their economies besides preparing to support their own large banks.

However, with declining interest rates, lower economic growth forecast, lack of buyers for either real estate or stocks, complete rout in liquidity markets, stoppage of bank’s lending activity has now impaired the profitability and stability of large banks. Various small banks (about 25) have already closed in USA till date in 2008. More mergers and closures of smaller banks are to be expected globally in such testing times besides decline in profitability.