August 3, 2011 / 6:23 PM / in 6 years

Moody's sets negative outlook on BNY, JPMorgan

BOSTON (Reuters) - Moody’s Investors Service said it may cut its ratings on Bank of New York Mellon Corp (BK.N) and JPMorgan Chase & Co (JPM.N) over the next 18 months, saying the banks might get less U.S. government support in the future.

A rating change could mean higher borrowing costs for the two New York banks.

Moody’s on Wednesday affirmed Bank of New York Mellon’s senior debt rating at Aa2, the third-highest rating, and JPMorgan at Aa3, the fourth highest. But the agency gave both banks’ ratings a negative outlook, meaning the ratings could be cut over the next 12 to 18 months.

The ratings reflect the close ties between the banks and the federal government. JPMorgan and Bank of New York Mellon were among the first financial companies to receive funds under the Troubled Asset Relief Program (TARP) in the fall of 2008.

Moody’s said it confirmed the ratings on the banks because of its decision to maintain its rating on the U.S. government at Aaa. In a crisis, “there is a very high probability that these institutions would be supported by the U.S. government to avoid a default,” Moody’s wrote.

    Moody’s wrote it was cutting the outlook to negative partly to match the negative outlook on U.S. debt, and because of its view that “over time the likelihood that systemically important banks will be supported by the U.S. government ... could decline” because of rule changes like the Dodd-Frank financial overhaul.

    Six other banks whose fortunes could depend on government support already had either negative outlooks, including Goldman Sachs Group (GS.N) and State Street Corp (STT.N), or were on review for downgrade. Those included including Bank of America Corp (BAC.N) and Citigroup Inc (C.N), said Moody’s credit analyst David Fanger via e-mail.

    Reporting by Ross Kerber. Editing by Steve Orlofsky and Robert MacMillan

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