S&P Global has downgraded credit ratings and outlooks for multiple US regional banks, citing concerns about higher funding costs and challenges in the commercial real estate (CRE) sector. The agency believes these factors will likely test the credit strength of the affected banks.
- The rise in interest rates by the US Federal Reserve has intensified liquidity concerns, particularly as funding deposit costs have surged, according to S&P’s summary note.
- Associated Banc-Corp and Valley National Bancorp had their ratings downgraded by S&P due to funding risks and increased reliance on brokered deposits. UMB Financial Corporation, Comerica Bank, and KeyCorp were also downgraded due to significant deposit outflows and prevailing higher interest rates.
- S&T Bank and River City Bank had their outlooks revised from “stable” to “negative” by S&P, primarily due to their higher exposure to the commercial real estate sector.
- The downgrades by S&P will likely result in higher borrowing costs for the struggling banking sector, which is trying to recover from the earlier crisis that occurred when Silicon Valley Bank and Signature Bank collapsed, leading to a loss of confidence and a run on deposits at several regional lenders.
- Global borrowing costs have risen, with US treasury yields reaching their highest level in 16 years as the bond market experiences a six-week rout. However, US stock index futures have gained, driven by growth stocks of large-cap companies.
- Moody’s had previously downgraded the ratings of 10 US banks by one notch and placed six banks, including Bank of New York Mellon, US Bancorp, State Street, and Truist Financial, under review for potential downgrades. Fitch, another major ratings agency, also expressed the possibility of downgrades for several US banks, including JPMorgan Chase, if the operating environment for the sector deteriorates further.