S&P cuts ratings for multiple US banks

S&P cuts ratings for multiple US banks
Ratings downgrade follows action from Moody's two weeks ago.
AUG 22, 2023
By  Bloomberg

Two weeks after Moody’s Investors Service rattled financial stocks by cutting the ratings for a slew of US banks, S&P Global Ratings is downgrading and dimming its outlook for several more — citing a similar mix of pressures making life “tough” for lenders.

S&P lowered grades one notch for KeyCorp, Comerica Inc., Valley National Bancorp, UMB Financial Corp. and Associated Banc-Corp, it said Monday in a statement, noting the impact of higher interest rates and deposit moves across the industry.

S&P also lowered its outlook for River City Bank and S&T Bank to negative and said its view of Zions Bancorp remains negative after the review.

Many depositors have “shifted their funds into higher-interest-bearing accounts, increasing banks’ funding costs,” S&P wrote in a note summarizing the moves. “The decline in deposits has squeezed liquidity for many banks while the value of their securities — which make up a large part of their liquidity — has fallen.”

Moody’s lowered credit ratings for 10 US banks earlier this month and warned it may downgrade others as part of a sweeping look at mounting pressures on the industry.

The KBW Bank Index of major US banks has since slumped almost 7% — heading for its worst monthly performance since the collapse of three regional banks in March sparked a broad selloff.

A spree of Federal Reserve interest-rate hikes is squeezing many small and midsize banks that for years paid little to attract customer deposits that fund loans and other assets on their balance sheets. Consumers and businesses now have more opportunities to earn higher returns elsewhere. That’s prompted non-interest-bearing deposits to fall 23% in the past five quarters, according to S&P.

As cash walks out the door, banks can either replace it with more expensive forms of funding, such as brokered deposits, or shrink their balance sheets by selling assets created in a lower-rate environment — locking in losses on those that have declined in value.

Either way, it bites into earnings.

Those pressures are widely expected to push more banks to combine in deals designed to shore up their finances. In July, Beverly Hills-based regional lender PacWest Bancorp, which had been shedding assets to bolster liquidity, agreed to sell itself to smaller rival Banc of California to help navigate the turmoil.

Federally insured banks were sitting on more than $550 billion in unrealized losses on their available-for-sale and held-to-maturity securities as of mid-year, S&P said.

Looking ahead, the situation may worsen for banks if the Fed holds rates high for longer than previously anticipated — further eroding the value of loans to borrowers who need to refinance.

“While many measures of asset quality still look benign, higher rates are pressuring borrowers,” S&P wrote. “Banks with material exposures to commercial real estate, especially in office loans, could see some of the greatest strains.”

Latest News

JPMorgan tells fintech firms to start paying for customer data
JPMorgan tells fintech firms to start paying for customer data

The move to charge data aggregators fees totaling hundreds of millions of dollars threatens to upend business models across the industry.

FINRA snapshot shows concentration in largest firms, coastal states
FINRA snapshot shows concentration in largest firms, coastal states

The latest snapshot report reveals large firms overwhelmingly account for branches and registrants as trend of net exits from FINRA continues.

Why advisors to divorcing couples shouldn't bet on who'll stay
Why advisors to divorcing couples shouldn't bet on who'll stay

Siding with the primary contact in a marriage might make sense at first, but having both parties' interests at heart could open a better way forward.

SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives
SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives

With more than $13 billion in assets, American Portfolios Advisors closed last October.

William Blair taps former Raymond James executive to lead investment management business
William Blair taps former Raymond James executive to lead investment management business

Robert D. Kendall brings decades of experience, including roles at DWS Americas and a former investment unit within Morgan Stanley, as he steps into a global leadership position.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.