S&P Global Ratings is downgrading five banks, including some of the country’s largest lenders.
The credit agency cited “difficult operating conditions” that were straining the banking industry and downgraded two other banks. Explaining its rationale for the cuts, S&P noted in a report Monday that banks face risks that could make them “less resilient than their similarly rated peers.”
The move comes after only two weeks Moody’s downgraded credit ratings 10 small and medium-sized banks due to increased financial risks and pressures that may erode their profitability. The two credit rating agencies are taking steps in the wake of the banking crisis that began in March when Silicon Valley Bank, once the nation’s 16th-largest bank, collapsed After a few days, the depositors feared its solvency and made a traditional bank withdrawal.
Supporting a bank downgrade is a significantly changed lending environment compared to early 2022, before the Federal Reserve started raising interest rates to fight high inflation. Today’s higher borrowing costs mean banks must pay more interest to depositors, while some bond assets have fallen in value.
Standard & Poor’s said in its report: “The sharp rise in interest rates and the quantitative tightening applied since March 2022 to combat high inflation weighs heavily on the financing, liquidity and distributed income of many US banks.” These factors also caused a decrease in the value of the banks’ assets and increased the potential for deterioration in the quality of the assets.
List of downgraded US banks
S&P said it would downgrade five banks, which together have an asset base of more than $400 billion:
Associated Bank Corp. Comerica Inc. KeyCorp UMB Financial Corp. Valley National Bancorp
Comerica and KeyCorp, which both operate under KeyBank, are among the largest banks in the country, according to industry data. Dallas-based Comerica ranks 31st in the country, with $90 billion in assets, while Cleveland-based KeyCorp ranks 20th, with $192 billion in assets.
Associated Banc Corp, based in Wisconsin, ranks No. 49, with $41 billion, followed by Kansas City, Missouri, which ranks No. 50, also with $41 billion. Valley National, headquartered in Passaic, New Jersey, is the 37th largest bank in the country, with assets of $61.7 billion.
S&P also revised the outlook to negative on two banks, meaning those institutions are at risk of a downgrade:
River City Bank S&T Bank
River City Bank, headquartered in Sacramento, California, is the 257th largest US bank, with assets of $4.3 billion. Indiana, Pennsylvania-based S&T Bank ranks 142 with assets of $9.2 billion.
Banks have also been reviewed by S&P
The ratings agency said it had reviewed three additional banks:
Zions Bancorporation Synovus FinancialTruist Financial
He maintained a negative outlook on Zions Banc, which is based in Salt Lake City and is the 32nd largest US bank with $87 billion in assets.
The credit rating agency maintained stable outlooks for Synovus and Truist, based in Columbus, Georgia, and Charlotte, North Carolina, respectively. Synovus, the 39th largest bank, has $60 billion in assets, while Truist is the seventh largest bank with $546 billion.
Why were these banks downgraded or reviewed?
Standard & Poor’s said it reviewed the 10 banks because it believes they have “potential risks in multiple areas.”
The ratings firm added: “For example, some people who have experienced a greater deterioration in financing – as evidenced by a sharp rise in costs or a heavy reliance on wholesale financing and intermediary deposits – may have lower profitability than their peers, high unrealized losses on their assets, or exposure to Target for commercial real estate or commercial real estate.
But, she added, the two banks she confirmed have a stable outlook, Synovus and Troest, had some factors that mitigated their risks.
Should I worry about my bank?
Experts say that while the downgrade underscores the increased risks facing some lenders, most depositors have nothing to worry about. The ratings downgrades affect only a few of the more than 2,000 banks in the United States
JD Durkin, host of financial website TheStreet, told CBS News earlier this month that regulatory pauses such as the FDIC lockdown, as well as the steps US regulators took when the Silicon Valley bank collapsed, should reassure consumers. FDIC insurance covers deposits up to $250,000.
On Monday, Standard & Poor’s noted that while it was taking action on several banks, “most US bank rating expectations are stable.”
He added, “The predominance of stable expectations reflects that stability in the US banking sector has improved significantly in recent months, as evidenced by more modest deposit declines than feared in the wake of bank failures in March and April 2023, and continued strong earnings, relatively still metrics.” Good financing by historical standards.”