Moody’s Downgrades 10 US Banks, Citing Recession and Interest Rate Risks

Moody’s Downgrades

Moody’s Investors Service, one of the leading global credit rating agencies, has lowered the ratings of 10 US banks and placed six others on review for possible further downgrades. The agency cited the growing profitability pressures, the looming recession, and the increased interest rate and asset-liability management risks as the main reasons for its actions.

Moody’s Downgrades

Moody’s Cuts Ratings of 10 Banks by One Notch

The 10 banks that saw their ratings cut by one notch are M&T Bank, Pinnacle Financial Partners, Prosperity Bank, BOK Financial Corp, First Horizon Bank, First Republic Bank, Hancock Whitney Bank, Synovus Bank, Texas Capital Bank, and Webster Bank. Moody’s said that these banks have weaker earnings generation capacity and lower capital buffers than their peers. The agency also noted that some of these banks have higher exposure to sectors that are more vulnerable to the economic downturn, such as energy, hospitality, and commercial real estate.

Moody’s said that the rating actions reflect its view that these banks will face challenges in maintaining their profitability and capital adequacy in the face of a mild recession scenario. The agency expects that the banks will see lower net interest income due to the low interest rate environment, higher credit costs due to rising loan losses, and lower fee income due to reduced customer activity.

Moody’s Puts Six Banks on Review for Downgrade

The six banks that are on review for downgrade are BNY Mellon, US Bancorp, State Street, Truist Financial, Northern Trust, and Regions Financial. Moody’s said that these banks have stronger financial profiles than the downgraded banks, but they also face significant pressures from the challenging operating environment.

Moody’s said that it will assess the ability of these banks to withstand the potential shocks from the recession and the interest rate volatility. The agency will also evaluate the banks’ asset quality, liquidity, capitalization, and earnings resilience. Moody’s said that it expects to conclude the reviews within 90 days.

Moody’s Changes Outlook to Negative for Several Banks

In addition to the rating actions, Moody’s also changed its outlook to negative from stable for several major US banks. The banks with a negative outlook include Capital One, Citizens Financial Group, Fifth Third Bancorp, Huntington Bancshares, KeyCorp, PNC Financial Services Group, SVB Financial Group, and Wells Fargo. Moody’s said that these banks have moderate exposure to the recession and interest rate risks, but they also have some mitigating factors such as diversified revenue streams, strong liquidity positions, and adequate capital levels.

Moody’s said that the negative outlook indicates that there is a higher likelihood of downward rating pressure in the next 12 to 18 months. The agency said that it will monitor the performance of these banks and their ability to cope with the adverse economic conditions.

Moody’s Affirms Ratings of Several Banks

Moody’s also affirmed the ratings of several US banks with a stable outlook. The banks with an affirmed rating include Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Ally Financial, American Express, BBVA USA Bancshares, Comerica Bank, Discover Financial Services, UMB Financial Corp., and Zions Bancorporation. Moody’s said that these banks have stronger financial profiles than their peers and are better positioned to withstand the recession and interest rate shocks.

Moody’s said that these banks have diversified business models, robust capital markets franchises, solid fee income sources, resilient asset quality metrics, ample liquidity buffers, and robust capital ratios. The agency said that these factors provide them with a competitive edge and a cushion against potential losses.

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