Fitch Cuts UBS Rating; Seven More Banks Under review

Rating agency Fitch, late on Thursday, cut UBS AG (NYSE: UBS) rating to A from A+. The rating agency also put seven other banks on negative credit watch. Fitch cited challenges in the global economic and financial markets as the reason for the downgrade.

The rating downgrade is yet another blow for Switzerland-based UBS in the last two months. Last month, the bank disclosed a $2.3 billion loss due to unauthorized trading. The rouge trading scandal also led to the ouster of the bank’s CEO.

Fitch is also reviewing the ratings of seven more U.S. and European banks, which include Barclays Bank Plc (NYSE: BCS), BNP Paribas, Credit Suisse Group AG (NYSE: CS), Deutsche Bank (NYSE: DB), Societe Generale, Bank of America Corporation (NYSE: BAC), Morgan Stanley (NYSE: MS) and Goldman Sachs Group (NYSE: GS).

Fitch said that in most cases the cut would be one notch and in some cases two notches. A rating downgrade for banks could lead to higher borrowing costs and collateral requirements, something banks can least afford in the current environment.

Fitch also lowered the ratings on U.K. banks; Royal Bank of Scotland and Lloyds Banking Group to A from AA. Speaking to Reuters, Joo-Yung Lee, Managing Director at Fitch’s Financial Institutions group, said that exposure to the European debt crisis and concerns about the business model of pure-play investment banks were the major reasons for the rating actions. Lee further said that some of the banks have greater reliance on wholesale funding and greater reliance on volatile trading earnings.

Volatile trading earnings are an area of concern for major banks, but especially for the ones that rely heavily on it. Among the U.S. banks, Morgan Stanley and Goldman Sachs are likely to be the worst hit due to volatile trading earnings, according to Lee. He added that Goldman and Morgan Stanley are less diverse than their global universal bank peers.

Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.