Moody’s Downgrades Credit Ratings for US Banks Amid Looming Economic Uncertainties: Moody’s Investors Service made significant waves on Monday as it lowered the credit ratings of 10 smaller to mid-sized US banks, casting a shadow of uncertainty over the nation’s financial landscape. This move also comes with the possibility of downgrading six more of the country’s largest lenders. The financial rating agency cited looming funding risks and weakened profitability as primary concerns, all stemming from the anticipation of a mild recession in early 2024.
Within the group of potential downgrades are six major banking players: Bank of New York Mellon (BK), U.S. Bancorp, State Street (STT), and Truist Financial (TFC). These institutions now find themselves under the watchful eye of Moody’s, which noted that profitability for the second quarter had been besieged by mounting pressures, leaving these giants grappling with a reduced capacity to generate internal capital.
A prominent threat emphasized by Moody’s is the “elevated CRE exposure,” pointing to the risks associated with commercial real estate. As interest rates continue to fluctuate and the demand for office spaces declines, coupled with restricted access to commercial real estate credit, the asset quality of banks remains under threat.
The downgraded list encompasses several names, including M&T Bank, Pinnacle Financial Partners, Prosperity Bank, and BOK Financial Corp. However, the repercussions extend beyond these institutions. Moody’s also assigned a negative outlook to 11 larger US banks, such as Capital One, Citizens Financial, and Fifth Third Bancorp, signaling a broader sectoral challenge.
This announcement arrives in the aftermath of the collapses of both Silicon Valley Bank and Signature Bank earlier this year, events that triggered waves of deposit withdrawals from regional banks. Combined with increasingly stringent monetary conditions, the Federal Reserve survey data from the preceding week indicated a decline in loan demand from both businesses and consumers during the second quarter. Analysts at Morgan Stanley anticipate this trend will persist in the coming quarters.
Adding to the financial complexity, Fitch Ratings recently downgraded the United States’ credit rating by a notch to AA+, citing concerns over fiscal deterioration and ongoing debt ceiling negotiations. This backdrop of economic uncertainty, coupled with the existing vulnerabilities in the US credit sector, underscores the current fragility of the nation’s banks.
Moody’s Downgrades Credit Ratings: Moody’s decision to downgrade these banks carries a message of caution. It signifies that many institutions may be ill-equipped to navigate the anticipated economic slowdown in early 2024. As the financial terrain continues to shift, these banks might need to undertake substantial portfolio adjustments to remain competitive within the ever-evolving post-pandemic economic landscape. The downgrade serves as a stark reminder that challenges lie ahead, urging financial institutions to fortify their strategies and resilience in the face of an uncertain future.
Source: AP
