Moody’s downgraded 15 financial institutions with global capital markets operations as well as Lloyds TSB yesterday by up to three notches yesterday (Thursday), including some dozen covered bond issuers or related banks, leaving all but JP Morgan, HSBC and RBC in the single-A band.

“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. “However, they also engage in other, often market leading business activities that are central to Moody’s assessment of their credit profiles.

“These activities can provide important ‘shock absorbers’ that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges.”

Banks with related covered bond programmes that were downgraded in Moody’s actions included:

• Bank of America NA from A2 to A3, stable outlook
• Barclays Bank plc from Aa3 to A2, negative outlook
• BNP Paribas from Aa3 to A2, stable outlook
• Crédit Agricole SA from Aa3 to A2, negative outlook
• Credit Suisse AG from Aa1 to A1, stable outlook
• Deutsche Bank AG from Aa3 to A2, stable outlook
• HSBC Bank plc from Aa2 to Aa3, negative outlook, and HSBC France from Aa3 to A1, stable outlook
• JP Morgan Chase Bank NA from Aa1 to Aa3, stable outlook
• Royal Bank of Canada from Aa1 to Aa3, stable outlook
• Royal Bank of Scotland plc from A2 to A3, negative outlook
• Société Générale from A1 to A2, stable outlook
• UBS from Aa3 to A2, stable outlook

The rating agency said that the risks inherent in global capital markets operations have led many institutions to fail or to require outside support. Moody’s said that other factors reflected in the rating actions included: the size and stability of earnings from non-capital markets activities; capitalisation; liquidity buffers; and other considerations including, as applicable exposure to the European operating environment, any record of risk management problems, and risks from exposure to US residential mortgages, commercial real estate or legacy portfolios.

Moody’s also cut Lloyds TSB Bank, from A1 to A2, on negative outlook. The rating agency said the key drivers were the bank’s sensitivity to an increasingly challenging operating environment in the UK and Europe, and Lloyds’ use of wholesale funding, although Moody’s noted that this was declining.