Banks still under pressure 📉 S&P, Moody's and Fitch with fresh US economy outlook

One of the world's leading credit rating agencies S&P Global, Moody's and Fitch Ratings commented situation in US banking sector and economy. U.S. bank stocks failed to sustain gains from the beginning of the session and resumed their downward movement, signaling continued weakness in the U.S. financial sector. The distressed First Republic Bank (FRC.US) is losing more than 4%. The sell-off is also accelerating on Bank of America (BAC.US) shares.

S&P Global

• Sovereign debt issuance will be 40% higher in 2023 than in 2019. The forecast for Q2 2023 is for bank lending to slow down as a result of recent tensions, and for market sentiment to shift or reveal hidden tensions that could trigger renewed volatility;
• Tightening financing conditions and tighter credit standards could bring many economies closer to a hard landing.

Moody's

• Our outlook is the mild recession in 2023. At the same time, credit conditions will remain tight and tighten. They will cause a slowdown in US economic growth;
• The authorities' swift action so far in dealing with the banking crisis is consistent with highly effective monetary policy making.
• In the baseline scenario, we see that tensions in the US banking sector will have an indirect fiscal cost through slightly weaker growth, but the weakening will be moderate.
• A scenario of severe, persistent tensions in the banking sector, which is not the baseline at this time, could result in a more sustained decline in economic and fiscal strength.
• We do not anticipate that the events of the past two weeks in the banking sector will have direct negative consequences for the US government;
• We do not anticipate significant direct fiscal costs resulting from the current situation in the banking sector. Despite the increased risks in the banking sector, we maintain our positive assessment of the US credit profile.    
• However, the fall in U.S. regional banks has resulted in higher banking sector risk than was previously factored into the sovereign credit profiles;
• At the same time, unless tensions worsen - at current credit risk associated with stress in the banking sector is low.

Fitch Ratings

• A notice of proposed rulemaking to implement the final Basel III rules is expected to be issued in the first half of 2023.
• It does not appear that other major regulators are willing to repeat the permanent write-down of Credit Suisse's AT1 bonds before full loss absorption by shareholders.
• The recent turmoil in the banking sector may accelerate tighter regulation for large U.S. regional banks.

Falling shares of First Republic Bank (FRC.US) are 'spooking' Wall Street. The bank's stock still lacks buyers despite a massive discount to book value, which is already close to 82%. Bank of America (BAC.US) has also returned to a downward trend, losing nearly 2%. Source: xStation5