Europe, new rules to lift bank costs-Moody’s

NEW YORK, May 26 (BestGrowthStock) – The sovereign debt crisis in
Europe and new U.S. financial regulation will lead to higher
bank funding costs, Moody’s said in a report on Wednesday.

The rating company noted that bond yield spreads between
U.S. financial companies and industrial corporations have been
flat to wider for 11 straight days on concerns about severe
indebtedness in Europe and new U.S. financial regulation.

“The lack of an imminent solution to European fiscal
imbalances will continue to be the leading driver of volatility
and higher bank funding costs in the short term,” Moody’s
economist Ben Garber wrote.

“In the longer term, a squeeze on bank profitability from
new regulations and the potential explicit denial of government
support for certain banking structures may inflate lending
stresses for a long time to come,” the report said.

The Wall Street overhaul bill approved by the Senate last
week won’t cause immediate changes to ratings on U.S. banks,
Moody’s Investors Service said in a separate report on Friday.

Moody’s said, however, that enactment of such a sweeping
piece of legislation is likely to have rating implications,
with both positive and negative elements for U.S. banks’ credit
quality.

The Moody’s report on Wednesday also noted estimates that
up to 20 percent of profits at major banks could be cut by new
restrictions on bank activities, which include derivatives
reform, caps on debit card fees, and higher capital
requirements.

The two other major rating companies also are reviewing
developments in Europe and the United States for potential bank
ratings implications.

Standard & Poor’s said it does not see any immediate impact
from new U.S. regulation, and Fitch Ratings said European
sovereign debt will be a challenge for U.S. banks. For more on
S&P, click [ID:nN26182212]

“Clearly the challenge will be for the larger multinational
U.S. banks that are very active globally (with) credit
exposures to European sovereigns,” said Christopher Wolfe,
managing director of financial institutions with Fitch
Ratings.

“Setting aside some of these exogenous events, you are
actually starting to see things look better” for U.S. banks,
Wolfe said.

He added, however, that “we are trying to recognize and
acknowledge the wild cards are legislation (in) Congress and
the European debt crisis.”

Investment Advice
(Reporting by Walden Siew and John Parry; Editing by Padraic
Cassidy)

Europe, new rules to lift bank costs-Moody’s