Moody’s Places Credit Ratings of Six US Banks Under Review for Possible Downgrade
(CNN) – In a recent development, Moody’s has announced that it is placing the credit ratings of six large US banks under review for possible downgrade. The banks include Bank of New York Mellon, State Street, Northern Trust, Truist, Cullen Frost, and US Bancorp. Moody’s decision comes as a result of the “continuing stress” in the US banking sector, including increased funding pressures and concerns over the amount of capital maintained by lenders.
A potential downgrade in their credit ratings could lead to higher financing costs for these banks. As a consequence, US stocks experienced a sharp decline, with the Dow falling over 350 points, or 1%, and the S&P 500 and Nasdaq also experiencing losses of 1% and 1.3%, respectively.
This news follows the recent collapse of Silicon Valley Bank, Signature Bank, and First Republic earlier this year, which had a significant impact on the US banking industry. Moody’s decision to review the credit ratings of these six banks was influenced by similar factors and also indicated “increased risks associated with commercial real estate exposures.”
The value of US offices has experienced a decline due to the widespread adoption of remote work since the pandemic. This has raised concerns about potential losses for banks that finance commercial real estate deals. Regional and community banks, in particular, face a higher level of risk due to their exposure to these loans.
Moody’s emphasized that most regional banks have lower regulatory capital compared to larger US banks and their global counterparts, further exacerbating the potential risks. The agency also stated that the second-quarter earnings of US banks revealed “substantial increases” in funding costs and profitability pressures, primarily driven by recent interest rate hikes.
In addition to the larger banks, Moody’s also downgraded the credit ratings of ten smaller US banks, including Commerce Bancshares, BOK Financial Corporation, and M&T Bank Corporation. The rationale behind this decision was the increasing risk of the devaluation of lenders’ assets, especially for small and medium-sized banks with significant exposure to commercial real estate.
The upcoming review of these credit ratings will be closely monitored by the banking industry and investors as any potential downgrade could have significant implications for the affected banks.