Moody’s cut the credit rating of 10 small and medium-sized US banks by one rung late Monday and said it might do the same with six big banks as well.
M&T Bank, Pinnacle Financial, BOK Financial, Commerce Bancshares and Webster Financial were among the smaller banks whose credit rating was lowered.
Bank of New York Mellon, State Street and Northern Trust, Truist (TFC), Cullen Frost and US Bancorp (USB) were the six big US banks whose credit ratings were placed under review for a possible downgrade. The agency cited “rising risks associated with commercial real estate exposures” as part of the reason for the move.
The international credit rating agency also announced that it changed its outlook to “negative” for 11 banks, including Capital One, Citizens Financial and Fifth Third Bancorp.
The announcement sent stocks tumbling. The Dow dropped more than 400 points – 1.2 percent – while the S&P 500 fell one percent, and the Nasdaq fell 1.2 percent.
The US banking industry has already undergone one shockwave earlier this year with the collapse of Silicon Valley Bank, Signature Bank and First Republic.
“Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital,” Moody’s said in a note.
“Higher interest rates continue to reduce the value of US banks’ fixed rate securities and loans and interest rate risk is not captured well in US bank regulation and thus can create liquidity risks.
“Interest rates are likely to remain higher for longer until inflation returns to within the Fed’s target range and as noted earlier, longer-term US interest rates also are moving higher because of multiple factors, which will put further pressure on banks’ fixed-rate assets.
“We continue to expect a mild recession in early 2024 and given the funding strains on the US banking sector, there will likely be a tightening of credit conditions and rising loan losses for US banks.”
Moody’s and Israel
Moody’s announced last month that it was not changing Israel’s credit outlook but expressed concern over the social upheaval perpetrated by anarchists protesting the government’s planned judicial reforms.
The agency left Israel’s credit rating at “stable.”
In response, Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich said in a joint statement, “When the dust settles it will become clear that Israel’s economy is very strong.”
