Bank of America, JPMorgan Chase and Wells Fargo shares shrug off Moody’s outlook cut to negative from stable

By Steve Gelsi

Big banks rally with broad market on tame CPI data even as Moody’s cuts view on big banks to align with its reduced outlook of U.S. debt

Moody’s Investors Service cut its rating outlook to negative from stable on Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co., but the stocks rallied Tuesday on the heels of tame inflation data.

“The rating actions … reflect the potentially weaker capacity of the government of the United States of America (Aaa negative) to support the U.S.’s systemically important banks,” Moody’s analyst Peter E. Nerby said in a research note published late Monday.

Moody’s kept in place its “Strong +” score for the macro profile of the U.S. banking system.

Moody’s said the downgrade of Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) aligns with its rating cut on Friday of U.S. sovereign debt to negative from stable.

Moody’s maintained its stable rating on Citigroup Inc.’s (C) debt.

Bank of America’s stock was up 5.1% after a favorable consumer-price-index reading lifted financial markets, while JPMorgan Chase rose 1.8%, Wells Fargo gained 3% and Citigroup rose 4.1%.

A potential upgrade of Bank of America would reflect the bank’s ability to sustain a strong and stable performance with profit and capital levels consistently stronger than peer averages, as well as maintenance of its conservative risk profile, a “superior” track record of controlling risk, consistency of management and its “strong” liquidity and funding profile, Nerby said.

Citigroup could see upward rating pressure if a corporate transformation now taking place under Chief Executive Jane Fraser is successful.

Moody’s said it will weigh factors at Citigroup such as the lifting of regulatory consent orders, a robust internal-control and risk-management environment that avoids risk-management failures that may affect its peers, maintenance of a restrained risk appetite and improved operating leverage.

JPMorgan runs a “complex” capital-markets business that could pose “substantial” creditor risks, Moody’s said.

Any potential upgrade in that bank’s baseline credit assessment “would depend on sustaining strong and stable performance and capital levels” above its peers, Moody’s said. Any upgrade of the bank’s baseline credit assessment would likely trigger an upgrade of JPMorgan Chase’s debt ratings, Moody’s said.

For its part, Wells Fargo’s debt remains highly rated, with upward price pressure not likely in the next 12 to 18 months, Moody’s said.

“[Wells Fargo] could be downgraded if it loses traction in remediating its legacy regulatory issues,” Moody’s said. “It could also be downgraded if it suffers a material deterioration in its deposit franchise or has an outsized spike in nonperforming assets, or if there is a material expansion into riskier activities relative to its other banking businesses.”

Major litigation or other operational-risk changes or a failure in controls could also affect its ratings, Moody’s said.

Also read: U.S. banks and regional lenders slide across the board as S&P is latest to downgrade ratings

-Steve Gelsi

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11-14-23 1149ET

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