S&P has just announced this morning, that they are preparing to cut its rating on more than USD$500 billion of investments tied to bad mortgage loans. It also warned of the potential for these downgrades to ripple throughout the world of banking and finance.
I hope all of us can see the shrewd timing of S&P announcement... to coincide with Fed's cut annoucement.
From Bloomberg:
Under accounting rules, many smaller banks haven't been required to write down their holdings until the credit ratings fell, enabling them to avoid the losses at bigger competitors including Citigroup Inc., Merrill Lynch & Co. and UBS AG. The world's largest banks have reported losses exceeding $133 billion related to mortgages, CDOs and high-yield, high-risk loans, according to data compiled by Bloomberg.
"If you're holding a AAA piece and it's now downgraded to AA, you might have to write it down, even if you're holding it for an investment,'' Gary Gordon, a bank stock analyst at Portales Partners LLC in New York, said.
"The longer it goes on and the higher the credit rating of the instrument downgraded, the wider the pain.''
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