Moody's Slashes 15 Banks In Ratings Bloodbath

NEW YORK (TheStreet) -- Moody's Investor Service slashed the ratings of 15 of the worlds largest banks late on Thursday as part of a long-threatened review of their creditworthiness.

Moody's cut Morgan Stanley(MS) by two notches to Baa1, instead of a possible three notch cut. The agency also cut JPMorgan Chase(JPM) , Citigroup(C) and Goldman Sachs (GS) by two notches and Bank of America(BAC) by a notch in a sweeping ratings change that still gives the nation's largest banks a negative outlook.

The cuts were not the worst case scenario after Moody's announced in February that it was considering downgrades to the worlds largest banks to better reflect the impact of new regulations and the risks of dealing in capital markets amid a worsening debt crisis in Europe and the United States.

While the downgrades could cost banks billions if matched by ratings agencies Standard & Poor's and Fitch, they may not be a panacea, even after bank stocks and the wider markets tumbled in Thursday trading after reports surfaced that cuts could come as early as the market close.

The downgrades by Moody's could raise bank borrowing costs as lenders ask for more collateral on borrowings and some investors in short term debt markets diversify from riskier institutions. In a first quarter analyst call, Blackrock(BLK) chief executive Larry Fink said that the world's largest money manager would consider diversifying from some trading partners if they were downgraded.

"All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities," said Moody's Global Banking Managing Director Greg Bauer, in a statement.

Moody's also downgraded European banking giants UBS(UBS) , Credit Suisse(CS) , Barclays (BCS) , BNP Paribas, HSBC(HBC) and Deutsche Bank(DB) in its global bank ratings reassessment. Notably, it cut Credit Suisse's ratings by three notches.