Investors are licking their wounds following Moody's downgrade of 15 of the biggest banks in the world on Thursday afternoon, especially since the hit coincided with the Dow closing down 250 points, bringing the second-worst trading day of 2012. Already, top banks like Bank of America, JPMorgan Chase, and Goldman Sachs, all downgraded between two and three notches, are protesting the move as "backward-looking." Why did Moody's do it?
Moody's is trying to compensate for messing up in 2008. The severity of the downgrade, despite some signs that banks have recovered, has led some to believe Moody's is repenting for previous sins. The Moody's downgrades are “a mea culpa from 2007 and 2008,” James Leonard, a credit analyst at Morningstar, told Bloomberg's Dakin Campbell and Michael Moore. “The banks have gotten so much better in the last few years in terms of capital, yet their ratings keep going down. What does that tell you? That the ratings were so wrong before.” Gerard Cassidy, a bank equity analyst at RBC Capital Markets, agrees. “American banks are stronger today than they were three years ago,” he said. “Yes, their ratings are lower, but is Citi tomorrow going to have to pay an extra 50 basis points for commercial paper? I don’t think so.”