Moody's May Cut Wells Fargo, JPMorgan Ratings

Moody's Investors Service on Wednesday said it may cut its ratings on Wells Fargo and changed its outlook on JPMorgan Chase to negative, from stable, indicating it is more likely to be cut over the next one to two years.

Moody's currently rates both Wells Fargo and JPMorgan "Aa3," its fourth highest investment grade.

The review on Wells Fargo "was prompted by a concern that Wells Fargo's capital ratios could deteriorate in 2009 from their current levels, which are comparatively low, because of the potential need to take high loan loss provisions in 2009," Moody's said in a statement.

The bank's low capital ratios "result from the fact that the equity Wells Fargo raised for its purchase of Wachovia was, in Moody's view, modest in comparison to the amount and quality of the acquired Wachovia assets," it added. Capital generation at the bank may be constrained as Wells Fargo will need to record provisions and merger-related expenses in 2009 and 2010 against assets at Wachovia that were not marked down on Dec. 31, 2008, Moody's said.

The review for possible downgrade is expected to be completed by the end of March.

JPMorgan's outlook was revised to negative, meanwhile, on concerns the bank's results will be "saddled by sustained high provisions and credit costs for the coming four to six quarters, due to increasing financial strains for U.S. consumers and the global recession," Moody's said.

"As a result, JPMorgan's capital generation could be modest at best," the credit ratings agency said.

The cost to insure the debt of JPMorgan with credit default swaps rose 10 basis points on Wednesday to around 190 basis points, or $190,000 per year for five years to insure $10 million in debt. Wells Fargo's credit default swap spreads also widened 10 basis points to 255 basis points.

• Get After-Hour Quotes for JPMorgan Chase and Wells Fargo
• Slideshow: Bank Failures of 2008

Copyright 2009 Reuters. Click for restrictions.