S&P Slashes Ratings Of 5 US Regional Banks Facing Growing Challenges

Articles From: Benzinga
Website: Benzinga


Benzinga Editor


  • S&P Global Ratings’ review prompts rating actions on 10 U.S. banks, with 5 rating downgrades.
  • Asset quality concerns arise as higher rates lead to rising nonperforming assets.

S&P Global Ratings has cast a spotlight on the challenges faced by several U.S. regional banks, resulting in a series of downgrades that have reverberated through the financial sector.

According to the renowned rating agency, the Federal Reserve’s tight grip on monetary policy is now putting a strain on the funding, liquidity, and revenue of many U.S. banks.

S&P Global Ratings’ Actions On US Banks

Among the banks affected by the downgrades, Associated Banc-CorpComerica Inc.KeyCorpUMB Financial Corp. and Valley National Bancorp have all seen their ratings lowered by one notch, with stable outlooks assigned. This recalibration reflects the challenges these banks face in the current environment and the potential impact on their overall stability.

Both Comerica and Keycorp slipped 0.8% in the premarket trading on Tuesday.

Additionally, River City Bank and S&T BancorpInc. have had their outlooks revised to negative while maintaining their ratings, signaling potential concerns that investors and stakeholders should monitor.

S&P affirmed the rating and maintained a negative outlook on Zions Bancorporation N.A. 

Moody’s took a similar action earlier this month, when it downgraded 10 U.S. banks and placed six on review for prospective downgrades, including Bank of New York Mellon Corp., US BancorpState Street Corp., and Truist Financial Corp.

Rising Distressed Loans, Funding Costs and Liquidity Squeeze

The impact of higher interest rates on borrowers is becoming evident through rising nonperforming assets, delinquencies, and charge-offs, approaching historical averages, according to S&P Global Ratings.

The report also suggests that banks with significant exposure to commercial real estate (CRE), especially office loans, could face the most significant strains on asset quality.

U.S. banks have increasingly turned to wholesale borrowings as a means of raising capital, leading to a more than 40 basis points rise in funding costs in the second quarter and over 180 basis points since the Federal Reserve began its rate hikes. The decrease in deposits has also put pressure on liquidity for many banks.

S&P Global Ratings estimates that FDIC-insured banks collectively held more than $550 billion in unrealized losses on available-for-sale and held-to-maturity securities as of June 30, 2023.

Far From Being A Systemic Risk

While challenges remain for U.S. regional banks amid changing economic conditions, S&P Global Ratings indicates that most banks have taken steps to mitigate risks and maintain stability.

“About 90% of the banks we rate have stable outlooks while only 10% have negative outlooks,” analysts wrote in the report.

“The preponderance of stable outlooks reflects that stability in the U.S. banking sector has improved significantly in recent months,” analysts indicated, adding that “most banks can manage a likely further moderate deterioration in funding.”

Originally Posted August 22, 2023 – S&P Slashes Ratings Of 5 US Regional Banks Facing Growing Challenges

Leave a Reply

Note that all comments are held for moderation before publishing.

Disclosure: Benzinga

© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Benzinga and is being posted with its permission. The views expressed in this material are solely those of the author and/or Benzinga and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.