Moody’s Investors Service has told banks it may later today announce downgrades of the credit ratings of as many as 17 lenders and securities firms with global capital markets operations, according to two people with knowledge of the plans.
The announcement may come after the close of trading in New York today, said one of the people, who asked to not be identified because the information is private.
“As a policy we don’t comment on the timing of potential future rating actions,” Abbas Qasim, a New York-based spokesman for Moody’s, said in a telephone interview today.
The company said in February it may lower the ratings of firms including UBS AG (UBSN), Credit Suisse Group AG (CSGN) and Barclays Plc (BARC) as part of a review of how Europe’s sovereign debt crisis was hurting more than 100 lenders. Any downgrades could raise borrowing costs and force banks to increase collateral.
The 43-member Bloomberg Europe Banks and Financial Services Index fell 0.5 percent to 73.92.
UBS, Credit Suisse and Morgan Stanley (MS)’s credit ratings may be cut by as many as three levels, Moody’s said in February. Barclays, BNP Paribas SA (BNP), Credit Agricole SA (ACA), HSBC Holdings Plc (HSBA), Goldman Sachs Group Inc. (GS), Deutsche Bank AG (DBK), JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), and Royal Bank of Canada (RY) may be lowered by two, Moody’s said.
Greg Hunter of USA Watchdog published a short but incredibly poignant article exploring the possibility that JP Morgan’s surprise announcement of a $2bln trading loss could be just the tip of the iceberg. Similar to how MF Globals originally stated loss of 700 million blew up to over 3 Billion, JP Morgan has not yet disclosed how much this trade will eventually cost them. We have been hearing for some time that there is a momentous amount of changes in store for the financial system, and this most assuredly is another one of those pivotal events contributing to that change. Along with all the announcements to conduct oil trading in gold, the new BRICS financial alliance, and the IMF recently becoming a buyer of Gold, JP Morgan’s trading loss signals a broader trend that the fiat empire is coming down. Click Here for full article.
JP Morgan Black Swan?
The surprise announcement by JP Morgan that it lost $2 billion in trading derivatives was portrayed in some mainstream media outlets as no big deal. The Associated Press reported Friday, “Bank stocks were hammered in Britain and the United States on Friday, partly because of fear that a surprise $2 billion trading loss by JPMorgan Chase would lead to tougher regulation of financial institutions. . . .”The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought,” CEO Jamie Dimon told reporters on Thursday. “There were many errors, sloppiness and bad judgment.” (Click here to read the complete AP story.)
I think the market thinks this $2 billion surprise loss is much more than fear of “tougher regulation,” or that it was just “sloppiness and bad judgment.” Remember MF Global and its bankruptcy on Halloween last year? It, too, was trading in risky derivatives, and it lost $6 billion that wiped out the firm along with $1.6 billion in segregated customer cash. In the aftermath, we still do not know where the customer money is, but we did find out MF Global was leveraged 40 to 1. It would be hard to believe other big banks were not leveraged in risky derivative trades the same way. This is why traders on CNBC were hitting the panic button last week. Joe Terranova said, “I will dump my Bank of America on this news.” Other traders on the show were equally scared. “I can almost guarantee it’s not just JPMorgan,’ added trader Guy Adami. ‘JPMorgan looks like it’s going to bring down the entire space,’ said Steve Grasso.” (Click here for the complete CNBC story.)
According to the Bank of International Settlements, as of June 2011 total over-the-counter derivatives contracts have an outstanding notional value of 707.57 trillion dollars, ( 32.4 trillion dollars in CDS’s alone). Where does this kind of money come from, and what does it refer to? We don’t really know, because over-the-counter derivatives are not transparent or regulated.
With regulated economic markets, when an underlying real asset is impaired (i.e. the company in question is bankrupt, the mortgage has defaulted, etc.), market value is assessed, default insurance is paid up to replacement or full value, bond holders and stock holders make claims on remaining value and the account is closed. There is no need for bailouts because order and proportion of compensation has been established and everything is attached to the value of the underlying asset.
When the unreal, counterfeit economy intrudes, you now have a situation where a person can put in an unregulated, but recognized, claim to be paid a thousand times over in case of impairment. Say market participants have negotiated for a bankrupt company a 70% payback for bondholders and (36% payback for insurance claims), and I come with not one but rather 1,000 CDS claims demanding to be paid for each CDS.
To give you a better perspective on what 1 trillion dollars looks like, view this to-scale image of an average human standing next to 1 trillion dollars denominated in stacks of $100 bills:
Just imagine, this multiplied by 707+ times! This is so much more money than the entire GDP of the world, it is only a matter of time before the confidence is lost.
Corroborating with mainstream media articles, Benjamin Fulford, and the general trend I alluded to in my article “2012: The fall of the US Dollar Hegemony,” Jim Sinclair gives an interview with Martin Ellis which states 5 major US financial institutions will go bankrupt this week.
To set this up, first read what Benjamin Fulford stated December 20th, 2011:
Some very big banks have certainly lost more money than exists in the real world.
Every year January is a month for settlements of accounts among major banking players. January of 2012 is going to be a very interesting month. The talk is that Citibank, J.P. Morgan and Bank of America are among the doomed entities. Then of course there is the universal disgust at Goldman Sachs that is not going to go away quietly.
Taken together with a sky-rocketing debt ceiling, a failing Eurozone, and increasing awareness of the fraudulence perpetrated by fiat paper dollars and you have the perfect storm for a MAJOR credit event.
According to Jim Sinclair, there is an absolute media blackout on this issue making this a must-listen interview: