Ratings agency S&P Global has decided to downgrade the ratings of several regional banks in the US, raising liquidity concerns, moments after a similar move by Moody's. At the same time, U.S. bond yields reached their highest level in 16 years, and markets view it as most likely that the Fed will hold interest rates until at least Q1 2024.
- According to S&P, higher debt service costs and the commercial real estate (CRE) crisis will test the real credit strength of lenders.
- S&P downgraded ratings for Valley National Bancorp, Associated Banc-Corp raising funding risks and heavy reliance on brokered deposits
- UMB Financial Corp, Comerica Bank (COM.US) and KeyCorp (KEY.US) - the rating of the aforementioned banks was reduced due to deposit outflows
- Also, the credit outlook for S&T Bank and River City Bank was lowered to 'negative' from the previous 'stable'. S&P cited these regional banks as heavily dependent on CRE loans
- Faced with the Fed's actions, banks must pay higher interest on deposits to stem the exodus of customers to alternatives: bonds or the broader 'fixed income' market
The BKX Bank Index is gaining slightly today, and the market almost completely ignored the S&P Global decision. In a recent interview with CNBC, a Fitch Ratings analyst warned that if the situation in the banking sector tightens lower ratings could also be given to key US banks, including JP Morgan (JPM.US).
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KeyCorp (KEY.US) shares are losing nearly 1.7% today, with buyers trying to climb above the SMA100 (black line). Source: xStation5
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