JPMorgan, BofA, Wells Fargo Retail Traders On Edge After Moody's Cuts Deposit Ratings For Big Banks After US Credit Downgrade

U.S. bank stocks drew retail attention on Monday after Moody’s downgraded the long-term deposit ratings of Bank of America (BAC), Wells Fargo (WFC), and JPMorgan Chase & Co. (JPM) on concerns over the government’s ability to provide support.

The cut comes days after the ratings agency lowered the U.S. sovereign credit rating to Aa1 from Aaa, citing political turmoil and a rise in debt.

Citing the sovereign rating cut, Moody’s lowered the three banks' long-term deposit ratings to Aa2 from Aa1. At the same time, it also downgraded the long-term senior unsecured debt ratings and issuer ratings for some units and branches of the Bank of America and The Bank of New York Mellon (BNY).

“The downgrade of the US Government's rating indicates that its ability to support the US's global systemically important banks has weakened,” Moody’s said.

It also downgraded the long-term counterparty risk ratings (CRRs) for certain rated subsidiaries and branches of the banks alongside State Street.

The ratings update came on a day when House Republicans are still trying to pass a government spending bill that would extend Donald Trump’s tax cuts and support the administration's immigration agenda.

The U.S. federal debt currently stands at about $36 trillion, and according to Moody’s, the government would need to spend 30% of its revenue on interest payments by 2035.

Earlier on Monday, JPMorgan flagged that economic uncertainty has risen, and a combination of a large fiscal deficit alongside inflation may constrain policymakers' responses.

Retail sentiment on Stocktwits was in the ‘bearish’ territory for JPMorgan, Bank of America, and Wells Fargo.

One retail trader said that investors should follow Warren Buffett’s Berkshire Hathaway, which lowered its stakes in banks in the first quarter.

Amid the uncertainties, the Trump administration is reportedly considering lowering the capital requirements a bank must set aside for risky investments to free them up for lending and boost their ability to intervene during turmoil in the treasury markets.

Bank of America, Wells Fargo, and JPMorgan stocks have gained between 1.4% and 10% year to date (YTD).

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