Downgrades Possible for Large Global Banks

Door SEI Investment Management Unit

Moody's Investors Service recently announced it may lower the credit ratings for 17 large global banks by the end of June. Included on the list are five of the six largest U.S. financial firms by assets: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley. Moody’s has cited diminished profitability as the main driver behind the downgrades.

This development should come as no surprise to investors, as Moody’s has been conducting a review of more than a hundred global and European banks since February. In previous commentaries, we noted that this cast a shadow over financial markets.

Our View

In the overall banking space, we believe that the downgrades have already been taken into account and are now reflected in Financials security prices. As such, we do not expect a significant reaction in the bond market, nor do we expect drastic setbacks to stock prices. In our opinion, the real impact of the potential downgrades will be seen in money market funds.

Our Funds

Our current fixed-income positioning reflects our positive view toward banks, as our Funds are generally overweight versus their benchmarks.

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