France Downgraded Below JPMorgan

September 15, 2025 | In this edition of The Institutional Risk Analyst, we ponder the world of credit and investing as sovereign nations see their debt ratings sinking below that of global corporations. Meanwhile, the price of gold is reaching new highs. Then we set up the Q3 2025 earnings of the top-seven US depositories for subscribers to our Premium Service. As we surge into quarter end with equity markets at all-time highs and global central banks turning the money spigots wide open, are inflated financial markets headed for a correction?

What's In a Rating?

If we told you that Citigroup (C) was the top performing large US bank stock in the past six months, would you be surprised?  Yet by the same token, Citi still has the smallest market cap of the top four US money center banks. The chart below shows the 50 top performing bank stocks in the WGA Bank Top 100 by market capitalization. We start with SoFi Technology (SOFI) on the left followed by Vertex Holdings (VBTX) and Citi at number three. Not bad for CEO Jane Fraser, but Citi and most of the rest of the group are still less than a quarter the market cap of JP Morgan (JPM).

Source: Yahoo Finance

As the chart above suggests and the table below quantifies, JPMorgan is the largest US banking group by market cap and by a wide margin. JPM also has the highest senior unsecured rating from the major agencies, which we present using S&P’s style. Fitch just downgraded France to “A+” from “AA-” and the other agencies seem ready to follow suit.  Germany and the Netherlands are still rated “AAA,” putting them a full ratings category above most of the rest of Europe. 

The EU rating is “AA+” from S&P and Italy is “BBB+,” but Greece is a weak “BBB” rating. The point is that most of the largest US banks, for now at least, are better credits than most EU nations. And the US itself is now just “AA+,” reflecting the rising debt and dysfunctional political situation in Washington. But can any private issuer have a rating above the sovereign rating of its home nation? What happens to the world of credit if OECD nations are no longer the top of the international credit ladder?

Just as the US has benefitted from being the world’s default currency for many decades since the July 1944 Bretton Woods Agreement, the ebbing of that “special role” for the dollar implies a significant downgrade for the US from current rating levels. If over the next two decades the US credit rating slides down to a weak “A” or even “BBB” rating, can JPM remain a “AA” credit or do all US issuers get downgraded? The answer sadly is the latter, especially when investors from other nations are making the call. 

As the credit rating of the US deteriorates, the value of any “too big to fail” credit support for US banks or the GSEs likewise is diminished. When the credit rating of the US falls, the credit rating of Ginnie Mae and the Federal Home Loan Banks and the Federal Reserve Banks also declines. So whereas today Moody’s et al give US banks an extra notch of uplift on the assumption of “too big to fail,” in the future the US credit support may no longer be meaningful to foreign investors. 

At present, there are two “AAA” rated corporations, Johnson & Johnson (JNJ) and Microsoft (MSFT), and a large group of “AA” rated corporate credits, including Apple (AAPL), WalMart (WMT) and Alphabet (GOOG). Can these US corporations remain premium credits as the US slides down to the same level as Greece and Italy? Or will they be forced to migrate offshore to other domiciles with higher credit ratings? Singapore, for example, has a “AAA” rating from the major agencies. Will Citigroup one day relocate to Asia?

Citigroup Rocks

Premium Service | As we noted above, even though Citi is the best performing large bank stock over the past year, its market cap ranks seventh among large banks after American Express (AXP). Why? Because Citi generates significantly less net income per dollar of assets than its peers. The $2.6 trillion bank generates a lot more revenue above the expense line, but overhead takes a disproportionate share of the operating income. Thus Citi had an efficiency ratio of 63% in Q2 2025, but JPM was ten points more efficient at just 52%.

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