Following the announcements, Moody’s Investors Service downgraded the long-term ratings of the bank from A2 to A1, stating that the write-downs have overwhelmed the earnings power of Bear’s “otherwise strong, but less well-diversified franchise”. While the rating agency has indicated its outlook on the bank to now be stable, concentration of exposure and an elevated risk appetite have been flagged as areas of concern.
Bad news was also on the cards for French bank Crédit Agricole, which announced that higher provisioning requirements and write-downs would reduce its 2007 pre-tax earnings by €2.5 billion. The bank decided to tighten its “already strict” write-down policy by including an additional accounting write-down on its super-senior collateralised debt obligations, as well as taking into account the situation of ACA Financial Guaranty and the significant strengthening of general provisions on credit instrument counterparty risk. Calyon, the corporate and investment banking division of the group, will report losses for financial year 2007.