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Moody's warns it may downgrade 17 global financial services firms

Ratings agency Moody's (NYSE:MCO) warned late Wednesday it may cut the credit ratings of 17 global and 114 European financial institutions in another sign the impact of the euro zone government debt crisis is spreading throughout the global financial system.

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Ratings agency Moody's (NYSE:MCO) warned late Wednesday it may cut the credit ratings of 17 global and 114 European financial institutions in another sign the impact of the euro zone government debt crisis is spreading throughout the global financial system.

The ratings agency was reviewing the long-term ratings and standalone credit assessments of a range of banks, Moody's added.

In a statement, Moody's said: "Capital markets firms are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions." 

It said among 17 banks and securities firms with global capital markets operations, it might cut the long-term credit rating of UBS (NUSE:UBS), Credit Suisse (NYSE:CS) and Morgan Stanley (NYSE:MS) by as much as three notches following the review.

Among the banks that might be downgraded by two notches are Barclays (NYSE:BCS), BNP Paribas, Credit Agricole, Deutsche Bank (NYSE:DB), HSBC Holdings (NYSE:HBC), and Goldman Sachs (NYSE:GS).

Bank of America (NYSE:BAC) and Nomura (NYSE:NMR) were included in those that might be downgraded by one notch.

The US rating agency said in a separate statement its action on 114 financial institutions from 16 European nations reflected the impact of the debt crisis and deteriorating creditworthiness of its governments.

It cited more fragile funding conditions, increased regulatory burdens and a tougher economic environment for its review of banks and securities firms with global reach.

The warning shot from Moody's follows rounds of downgrades in European sovereign ratings as the euro zone's struggle to keep its weakest link Greece afloat has been driving up borrowing costs and straining finances of other nations.

Last Monday, Moody's cut the ratings of six European nations including Italy, Spain and Portugal and warned it could strip France, Britain and Austria of their top-level AAA grade.

Standard & Poor's cut France's and Austria's top ratings and downgraded seven other euro zone nations last month. It also cut the euro zone's bailout fund by one notch.

Moody's also downgraded the insurance financial strength ratings by one or two notches of several insurance companies, which it said related to their investment and operating exposures to Spain and Italy.

In its review of European financial institutions, Moody's said that once completed, the ratings would "fully reflect the currently
foreseen adverse credit drivers."

European banks' bond holdings of struggling euro zone nations Greece, Portugal, Ireland, Spain and Italy have trapped Europe in a vicious circle.

The falling value of the debt puts pressure on banks, which in turn weighs on lending and economic activity, making it tougher to sustain the growth that governments badly need to shore up their finances.

The biggest single group among the 114 institutions under review were headquartered in Italy, followed by Spain, with more than 20 each. Nine were headquartered in Britain, 10 in France and seven in Germany.

Moody's said nine of the 17 banks with global reach are included in the list of 114 financial institutions in Europe.

European Union leaders have been trying to put a financial "firewall" around the nations most afflicted by the euro zone debt
crisis. But jittery market sentiment suffered a fresh setback on Wednesday when several EU sources said that the euro zone was considering a delay in parts of a second bailout plan for Greece.

Moody's said that for 99 European financial institutions, the standalone credit assessments have been placed on review for downgrade. For 109 institutions, the long-term debt and deposit ratings have been placed on review for downgrade.

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