Tuesday, November 29, 2011
By David Henry

NEW YORK (Reuters) – Standard & Poor’s reduced its credit ratings on 15 big banking companies, mostly in the Europe and the United States, on Tuesday as the result of a sweeping overhaul of its ratings criteria.

JPMorgan Chase & Co (NYSE:JPM), Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC), Goldman Sachs Group Inc (NYSE:GS), Morgan Stanley (NYSE:MS), Barclays Plc (LSE:BARC.L), HSBC Holdings Plc, (LSE:HSBA.L) Royal Bank of Scotland (AAHAUS.UL) Group Plc and UBS AG (VTX:UBSN.VX), were among the banks that had their ratings reduced by one notch each. A notch is one third of a letter rating.

S&P also left the ratings of 20 banks as they were and raised the ratings of two in announcing results from its new ratings criteria for 37 of the world’s biggest banking companies. The agency also updated ratings for dozens of bank subsidiaries of the companies.

The two banks which received higher ratings are Bank of China Ltd (Shanghai:601988.SS) and China Construction Bank Corp. (Shanghai:601939.SS) Ratings on both rose to A from A-minus.

The announcement by S&P comes at a time when the markets for bank debts are on edge because of the European debt crisis. It could increase already-soaring funding costs for some banks. But S&P began warning the markets more than a year ago that it was revising its ratings, perhaps tempering the impact of Tuesday’s move on bond and stock prices.

Bank stocks briefly fell on the news in after-hours trading, with the Select Sector Financial SPDR fund (NYSEArca:XLF) down about 0.7 percent at one point, but the declines were short-lived.

“Bondholders and participants in the credit derivatives markets have for some time been trading these major banks as though they would have downgrades,” said Allerton “Tony” Smith, a senior director at Moody’s Analytics, a research arm of Moody’s Corp (NYSE:MCO).

Still, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia, “Banks could see higher funding costs.”

S&P’s overhaul is part of a broad, multi-year drive by the agency to improve its products and repair its reputation. S&P badly tarnished its image by wrongly putting triple-A ratings on securities backed by subprime mortgages. The agency is owned by the McGraw-Hill Companies Inc (NYSE:MHP).

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