In the U.S.: U.S. Stock Futures Rise As Banks Rally After Downgrades

22 June 2012

“Why does anybody pay any attention to those rating companies?” Too tough a question for a Friday if you ask me!

U.S. stock futures rose, after the second-biggest loss in the Standard & Poor’s 500 Index this year, as the downgrade of 15 global banks by Moody’s Investors Service was followed by rallies in financial shares.

Morgan Stanley advanced 3 percent after the ratings firm cut the bank by two levels rather than a threatened three grades. Bank of America Corp. and Citigroup Inc., which were lowered to within two levels of junk, rose at least 1 percent.

S&P 500 futures expiring in September added 0.3 percent to 1,322 at 8:22 a.m. New York time. Dow Jones Industrial Average futures rose 36 points, or 0.3 percent, to 12,538.

“The bad news is out and it was not as bad as expected,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a telephone interview. His firm oversees $350 billion. “Why does anybody pay any attention to those rating companies? They completely missed it during the financial crisis. They had been telegraphing the bank downgrades for a long time. That was the best telegraphed secret I’ve seen on Wall Street in 20 years.”

None of the financial firms was cut more than Moody’s had forecast. Morgan Stanley’s long-term senior unsecured debt rating was reduced two grades to Baa1, and nine other firms received two-level cuts, Moody’s said yesterday. The downgrades left Citigroup and Charlotte, North Carolina-based Bank of America as the lowest-rated banks among the 15 at Baa2.

Weighed Down

The prospect of downgrades had weighed on banks since Moody’s said Feb. 15 it was reviewing 17 banks with capital- markets operations because of fragile confidence and tighter regulations that pinched revenue. Pressure mounted as Europe’s sovereign-debt crisis intensified and cast doubt on the health of some of the continent’s lenders.

Equities tumbled yesterday, while commodities entered a bear market, after signals of a global slowdown in manufacturing added to disappointing housing and labor market data at the world’s largest economy. The reports came out a day after the Federal Reserve lowered its growth and employment estimates while signaling it may add to its record stimulus.

Investors also watched news out of Europe. German business confidence fell to the lowest in more than two years in June as the worsening sovereign debt crisis clouded the economic outlook. Spain may submit a formal request for bank aid from its euro-area partners within the “next hours,” Luxembourg’s Finance Minister Luc Frieden said in an interview this morning.


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