Moody's Warns Over 100 European Banks of Possible Downgrades

Moody's Investors Service announced that it was placing more than 100 European financial institutions in 16 countries on review for possible downgrades.

Reasons for the possible downgrades that were cited by Moody's included the Eurozone financial crisis, earlier downgrades of multiple Eurozone countries and long term difficulties faced by banks with significant capital market activities.

Moody's acknowledged the efforts of Eurozone countries to shore up their banking systems and prevent Greece from defaulting but the rating agency also said that "while there are mitigating factors such as the currently supportive stance of many governments towards their banking systems and accommodative monetary policies, these are overshadowed by the aforementioned pressures, in Moody's opinion "

Moody's said that the factors that were most likely to lead to an individual bank to be downgraded included difficulties and concerns caused by the current difficult operating environment, lower profits, risk to the bank's assets, a difficult funding environment and the risks associated with the bank's capital market activities.

Moody's also noted that is was unlikely that any of the banks would be upgraded, saying that "Moody's believes there is little likelihood of any upward rating pressure for any of the banks covered by today's announcement, unless: (i) the European operating environment improves materially; (ii) a decline in riskier assets meaningfully reduces a bank's exposure to the above-described adverse drivers; (iii) the banks' use of wholesale funding declines significantly; and (iv) the extent of any capital market activities falls significantly."

Overall, Italy and Spain received the worst treatment by Moody's. Both of the countries had their credit ratings downgraded earlier this week by Moody's and in today's downgrade warning Italian and Spanish banks accounted for more than a third of the financial institutions to receive downgrade warnings. Banco Santander (NYSE: STD), Deutsche Bank (NYSE: DB) and HSBC Holdings (NYSE: HBC) were among the major European banks that Moody's Investors Service warned could soon be downgraded.

The news of the possible downgrades by the credit rating agency was part of a double blow against stock market indexes around the world. It came later on the same day that news broke that negotiations between Greece and Eurozone finance ministers could be falling apart. If Greece doesn't reach a deal with its international creditors soon, the country might not receive its next round of bailout funds, which would likely cause the troubled country to finally default on its burdensome debt.

News that Greece was edging closer to a possible default and that Moody's Investors Service might downgrade over 100 European banks, as well as number of major American banks, led to all major Asian stock indexes ending Thursday lower. Most major European stock indexes were also lower at the time that this article was published.