HSBC and Goldmans under fire as S&P cuts big banks

Standard & Poor’s has downgraded a raft of US and UK banks including HSBC, Barclays, and Goldman Sachs following an overhaul of its ratings criteria.

Barclays, HSBC, RBS and UBS have all seen their long-term credit ratings cut one notch in a move which will shake investor sentiment and could increase the banks’ funding costs.

In the US, Bank of America, JPMorgan Chase, Wells Fargo, Goldmans, Morgan Stanley and Citigroup also saw their ratings cut by a single notch.

However, S&P upgraded Bank of China and China Construction Bank Corp from A- to A and held the A rating on Industrial and Commercial Bank of China, rating them more highly than the major US banks.

Asian fund manager warned recently that China’s state-owned banking system is sitting on a slew of toxic loans and may face problems if off balance sheet lending continues to rise.

S&P's move will ramp up the pressure on the banks at a time when their cost of borrowing is already on the rise. However, the ratings agency had warned of the plans last year, Reuters reports, so market reaction is expected to be fairly muted.

The overhaul is part of a broad, multi-year drive by the agency to improve its products and repair its image. S&P saw its reputation damaged when it wrongly put AAA ratings on securities backed by US subprime mortgages.

S&P officials expect the new system to allow the agency to more quickly change ratings when it sees new threats to bank funding or sees governments become less willing to bailout creditors, according to Reuters.

In London, Barclays shares fell 1.83% to stand at 165.9p, while HSBC was down 1.26% to 480.4p and RBS was 0.82% lower at 19.36p.