The Moody's Downgrade $MTB $WBS $PNFP
Ratings agency Moody's downgraded the credit ratings of 10 U.S. banks on Monday and warned of possible cuts to more lenders.
Moody's cut the ratings of those banks by one notch, and also placed some other banks on review for potential downgrades.
The agency downgraded the credit ratings of 10 midsized banks by one notch. They were M&T Bank (MTB), Webster Bank (WBS), Pinnacle Financial Partners (PNFP), BOK Financial Corp. (BOKF), Associated Banc-Corp. (ASB), Old National Bancorp (ONB), Amarillo National Bank, Commerce Bancshares (CBSH), Prosperity Bank (PB), and Fulton Financial Corp. (FULT).
Moody's. "Ratings and Assessments News." (Registration required.)
It also assigned a negative outlook to six top-tier lenders—Bank of New York Mellon (BK), U.S. Bancorp (USB), State Street Corp. (STT), Truist Financial Corp. (TFC), Northern Trust Corp. (NTRS), and Cullen/Frost Bankers Inc. (CFR)—placing them on review for a potential future downgrade.
"U.S. banks continue to contend with interest rate and asset-liability management risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets," the ratings agency wrote in a note.
"Meanwhile, many banks' Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital," it added.
Moody's also changed its outlook to negative for 11 U.S. major lenders, including Capital One, Citizens Financial and Fifth Third Bancorp.
Moody's announcement came after the ratings firm Fitch downgraded U.S. government debt rating last week.
Regional banks are at a greater risk since they have comparatively low regulatory capital, Moody's warned, adding that institutions with a higher share of fixed-rate assets on the balance sheet are more constrained in terms of profitability and ability to grow capital and continue lending.
"Risks may be more pronounced if the U.S. enters a recession -- which we expect will happen in early 2024 -- because asset quality will worsen and increase the potential for capital erosion," the ratings agency said.
When Moody's downgrades a bank, it means that they believe the bank is more likely to default on its debt. A downgrade can have a number of negative consequences for the bank, including:
Increased borrowing costs: Banks with a lower credit rating will have to pay more interest on their debt. This can make it more difficult for them to raise the capital they need to operate.
Reduced lending: Banks with a lower credit rating may be less willing to lend money to businesses and consumers. This can lead to a slowdown in economic activity.
Share price decline: A downgrade can cause the share price of a bank to decline. This can make it difficult for the bank to raise capital through stock offerings.
Increased regulatory scrutiny: Banks with a lower credit rating may be subject to increased regulatory scrutiny. This can make it more difficult for them to operate and can lead to higher costs.
A downgrade can also damage the reputation of a bank and make it more difficult for them to attract customers and employees. In some cases, a downgrade can even lead to a bank being forced to close.
Here are some of the reasons why Moody's might downgrade a bank:
A decline in the bank's financial performance.
A deterioration in the bank's asset quality.
A weakening of the bank's capital levels.
An increase in the bank's risk profile.
A change in the regulatory environment.
If you are considering investing in a bank, it is important to pay attention to Moody's ratings. A downgrade could be a sign that the bank is facing financial difficulties and that your investment is at risk.
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