Moody's US banks rating


Moody’s reduced credit ratings for many smaller to medium-sized US banks on Monday. It also mentioned a possible downgrade for some of the largest national banks.

The reason behind this is a concern that the banking industry’s credit stability might face challenges due to funding risks and lower profitability.

Moody’s lowered the ratings of 10 banks slightly and is considering downgrading six big banks, including Bank of New York Mellon (BK), US Bancorp, State Street (STT), and Truist Financial (TFC).

“Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital,” Moody’s wrote in a note.

“This comes as a mild US recession is on the horizon for early 2024, and asset quality looks set to decline, with particular risks in some banks’ commercial real estate (CRE) portfolios.”

Moody’s, a financial rating agency, has highlighted potential risks in the banking sector due to various factors. One of the main concerns is the increased exposure of banks to commercial real estate (CRE), which has become riskier due to high-interest rates.

Additionally, remote work has led to a decline in office demand, affecting the value of CRE properties, and the availability of credit for CRE projects has also decreased.

Moody’s downgraded several banks as a response to these risks. Notable among them are M&T Bank, Pinnacle Financial Partners, Prosperity Bank, and BOK Financial Corp. These downgrades reflect the challenges these banks might face in the current economic climate.

Furthermore, the agency has taken a negative outlook on eleven major lenders, including Capital One, Citizens Financial, and Fifth Third Bancorp. This change in outlook suggests that these banks might encounter difficulties in the near future.

Earlier this year, the collapse of Silicon Valley Bank and Signature Bank created a crisis of confidence within the US banking sector. This crisis resulted in a rush of deposit withdrawals from regional banks, despite authorities implementing emergency measures to restore confidence.

Moody’s also noted that banks with significant unrealized losses, not reflected in their regulatory capital ratios, could face challenges if confidence in the current high-interest rate environment wanes.

The report from Moody’s arrives at a time when the Federal Reserve has been rapidly increasing interest rates, which is impacting loan demand and economic activity. This has led to concerns about the possibility of a recession and has put pressure on industries like real estate to adapt to post-pandemic conditions.

Another credit agency, Fitch, has downgraded the United States’ credit rating to AA+ due to ongoing fiscal challenges and repeated debt ceiling negotiations.