Source: Wind
Hong Kong's Wande News Agency reports that Moody's has downgraded the credit ratings of many small to medium banks in the US and added several major Wall Street banks to the negative watch list.
S&P downgraded the ratings of 10 banks by one level, while major banks$Bank of New York Mellon (BK.US)$,$U.S. Bancorp (USB.US)$,$State Street (STT.US)$,$Truist Financial (TFC.US)$,$Cullen/Frost Bankers (CFR.US)$with$Northern Trust (NTRS.US)$They are all currently being assessed for possible downgrades.
Moody's also downgraded the rating outlook for 11 banks to negative, including$Capital One Financial (COF.US)$,$Citizens Financial (CFG.US)$with$Fifth Third Bancorp (FITB.US)$. Smaller banks whose credit ratings have been downgraded include$M&T Bank (MTB.US)$,$Pinnacle Financial Partners (PNFP.US)$,$BOK Financial (BOKF.US)$with$Webster Financial (WBS.US)$.
“With the gradual withdrawal of unconventional monetary policies, many deposits in the system will be withdrawn, and higher interest rates depress the value of fixed interest rate assets, banks will continue to fight interest rates and asset liability management (ALM) risks, which will affect liquidity and capital,” Moody's analysts Jill Cetina (Jill Cetina) and Ana Arsov (Ana Arsov) said in an attached research report.
“Meanwhile, the second-quarter results of many banks showed increasing profit pressure, which would reduce their ability to generate internal capital. Meanwhile, if the US experiences a moderate recession in early 2024, asset quality appears to decline from a steady but unsustainable level, and some banks' commercial real estate (CRE) portfolios are particularly risky.”
Earlier this year,$SVB Financial (SIVBQ.US)$with$Signature Bank (SBNY.US)$The collapse has triggered a crackdown in the entire banking industry, and regional banks in the US have become the focus of people's attention as a result. The panic eventually spread to Europe, causing Credit Suisse (Credit Suisse) to accept its domestic rival$UBS Group (UBS.US)$emergency relief.
Despite the authorities' best efforts to restore confidence, Moody's warned that in an environment of high interest rates, banks that did not achieve significant losses and were not included in regulated capital adequacy ratios may still be vulnerable to a sudden loss of market or consumer confidence.
The Federal Reserve raised the benchmark loan interest rate to the range of 5.25%-5.5% in July this year. Over the past year and a half, the Federal Reserve has actively tightened monetary policy to contain high inflation.
Moody's said in the report, “We expect that the sharp increase in the Fed's policy interest rate and the continued reduction in reserves in the Fed's banking system, and the associated reduction in deposits due to the continued depreciation of QT will increase banks' balance and liability risks.”
“Interest rates are likely to remain high for a longer period of time until inflation returns to the Fed's target range. As mentioned earlier, long-term interest rates in the US are also rising due to various factors, which will put further pressure on banks' fixed interest rate assets.”
Moody's pointed out that regional banks face greater risks because their regulatory capital is relatively low, adding that institutions with relatively high fixed interest rate assets on their balance sheets are more limited in terms of profitability, capital growth ability, and ability to continue lending.
The analyst added, “If the US goes into recession, the risks may be more obvious — we expect this to happen in early 2024 as asset quality will deteriorate and the possibility of capital erosion will increase.”
Although the pressure facing the US banking industry is mainly on financing and interest rate risks brought about by tightening monetary policy, Moody's warned that asset quality is deteriorating.
The agency said, “We still expect a moderate recession in early 2024. Given the tight capital of the US banking industry, Bank of America's credit conditions may be tightened and loan losses may increase.”
Editor/Somer