S&P cuts estimates on US banks: why and what will happen

The rating agency S&P has cut the ratings and revised the outlook of several US banks. The revision was released last night in the US. The decision comes after a similar initiative taken two weeks ago by Moody’s. The reasons for this choice were motivated by the financing risks following the flight from deposits and the consequences of the rise in interest rates which will probably put the creditworthiness of the sector to the test. The US banking crisis is still in the spotlight: the collapse of Silicon Valley Bank and Signature Bank earlier this year triggered a crisis of confidence in the US banking sector, leading to a run on deposits in a series of regional banks, despite the authorities having launched emergency measures to bolster confidence.
S&P downgraded the ratings of Associated Banc-Corp and Valley National Bancorp due to funding risks and increased reliance on brokered deposits.
It also downgraded UMB Financial Corp, Comerica Bank and Keycorp, citing large deposit outflows and higher interest rates.
Sharp hikes in interest rates are weighing on funding and liquidity at many U.S. banks, S&P said in a summary note, adding that deposits held by banks insured by Federal Deposit Insurance Corp (Fdic) will continue to rise, according to the analysis. decrease as long as the Federal Reserve continues its “quantitative tightening”.
The rating agency also downgraded the outlook of S&T Bank and River City Bank to negative from stable due to, among other factors, high exposure to the commercial real estate (CRE) sector.
In early August, Moody’s downgraded 10 banks by one notch and placed six major banks, including Bank of New York Mellon, US Bancorp, State Street and Truist Financial, on watch for potential downgrades.