Credit rating agency Fitch has issued a cautionary statement indicating that major Wall Street banks, including JPMorgan, could experience potential credit rating downgrades if the current operating conditions of the industry continue to worsen.
This announcement led to a decline of 2.6% in JPMorgan’s stock price, bringing it down to $150.64 per share. Similar price shifts were observed among other financial institutions.
Fitch’s warning underscores the vulnerability of US banks to downgrades, with JPMorgan being specifically identified as one of the institutions at risk.
Earlier, Fitch had already lowered the rating of the US banking sector’s operating environment from AA to AA- due to factors such as national credit rating pressures, regulatory challenges, and uncertainties related to the Federal Reserve’s monetary policies.
If Fitch executes another downgrade, altering the rating to A+ from AA-, it would necessitate a comprehensive reevaluation of the ratings for the more than 70 US banks under its coverage.
Chrise Wolfie, an analyst, highlighted the potential consequences of such an action on CNBC.
“If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions,” said Chris Wolfe, an analyst for Fitch Ratings.
Moody’s downgrade and Fitch’s concerns reflect banking sector instability
Moody’s recent downgrade of ten small and mid-sized banks has been followed by Fitch’s warning of potential downgrades. Moody’s also indicated that seventeen other lenders might face similar demotions.
Alongside this, Fitch recently downgraded the US long-term credit rating from AAA to AA+ due to political dysfunction and increasing debt burdens.
This move was criticized, especially considering the recent resolution of the debt ceiling crisis. As one of the top credit rating agencies, Fitch’s downgrade was the first of its kind in over a decade.
Fitch cited factors such as tax cuts, spending initiatives, and economic challenges for the growing budget deficits. The agency also highlighted the oversight of mid-term challenges linked to entitlement expenses.
These events underscore the ongoing concerns about the stability of the banking sector and the broader economy.