Moody's, the well-known credit rating organization, downgraded the ratings of 10 U.S. small and mid-sized banks by one notch late Monday, sending shockwaves across a sector still reeling from the collapse of regional banks in March.
The banks affected by the downgrades includes M&T Bank Corp.
Moody's action comes amid worries about rising financing costs, possible weaknesses in regulatory capital, and escalating risks linked with commercial real estate lending. These concerns are heightened by the declining demand for office space.
"Although the general drain on deposit funding caused by quantitative tightening (QT) moderated in Q2, there remains a significant risk that systemwide deposits will resume their decline in the coming quarters," Moody's stated in the report.
In addition to the downgrades, the rating agency has also announced the following actions:
- Northern Trust Co.
(NTRS ) and Cullen/Frost Bankers Inc.(CFR ) are now under meticulous scrutiny for potential credit downgrades. - Moody's has initiated a comprehensive evaluation of six major banking giants, including Bank of New York Mellon
(BK ) , US Bancorp(USB ) , State Street(STT ) , and Truist Financial(TFC ) . This review could potentially lead to additional credit downgrades. - Moody's has also adopted a "negative" outlook on eleven lenders, encompassing names such as PNC Financial Services Group
(PNC ) , Capital One Financial Corp.(COF ) , Citizens Financial Group Inc.(CFG ) , Fifth Third Bancorp(FITB ) , Regions Financial Corp.(RF ) , Ally Financial Inc.(ALLY ) , Bank OZK(OZK ) , and Huntington Bancshares Inc.(HBAN ) .
Premarket trading on Tuesday saw drops in shares of U.S. banks in reaction to this news.
Meanwhile, the Italian government announced an unexpected 40% tax on additional profits for banks, as well as weaker-than-expected trade figures for China, adding to the general risk-averse feeling among investors.
Major banks which include JP Morgan Chase & Co.
Among the components of the KBW Bank Index, tracked by the Invesco KBW Bank ETF
