S&P threatens to Downgrade17 Eurozone Members - The Ultimatum

Patience for Standard & Poor's is wearing thin as it warned it may carry out an unprecedented mass downgrade of Eurozone countries, if EU leaders fail to deliver a convincing financial and political solutions on how to solve the region's debt crisis in a summit on Friday, according to Reuters.

It said ratings could be lowered by one notch for Austria, Belgium, Finland, Germany, the Netherlands and Luxembourg, and by up to two notches for the remaining nine placed under review, including currently AAA-rated France. Cyprus was already on downgrade watch and Greece already a 'junk' CC-rating.

President Nicolas Sarkozy and Chancellor Angela Merkel told reporters that their plan included automatic penalties for states that fail to keep deficits under control, and an early launch of a permanent bailout fund for euro states in distress. Whether this is good enough to resolve the crisis and restore investors’ confidence remains to be seen but any move of advancement are likely to bring cheer to all parties.

As the rating agency was widely criticised for their inertia during the Great Financial Crisis (GFC) in 2008, they would be adamant not to repeat the same mistake again by erring on the side of caution.

S&P Downgrades Banks, What's Next?

Ratings agency Standard & Poor's has downgraded the long-term credit grades of 37 financial institutions worldwide. Among those who suffered the cut are Wall Street titans such as Bank of America, Goldman Sachs, JP Morgan and Morgan Stanley. Alongside are other established names like London-based Barclays, HSBC, and UBS.

S&P said its move reflects new criteria for banks, based on changes in market trends and government support. It evaluates banks based on economic and industry risks, bank-specific strengths and weaknesses, as well as "likelihood of external government or group support."

Downgrade is damaging for the banks as it can increase their borrowing costs and put further pressure on their shaky finances. BOA shares has dropped to a new low on concerns of its financial stability to withstand another downturn in the U.S. economy or further trouble in Europe. We are also concerned whether this will lead to another credit crunch as banks brace themselves for another round of recession.