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S&P Global Downgrades Outlooks on Five Regional US Banks to 'Negative'

S&P Global, a leading ratings agency, has revised the outlook for five regional U.S. banks from ‘stable’ to ‘negative.’ This move is attributed to concerns over their exposure to the commercial real estate (CRE) market.

The banks affected by this decision include First Commonwealth Financial, M&T Bank, Synovus Financial, Trustmark, and Valley National Bancorp. According to S&P Global, these institutions face heightened risks due to their significant CRE loan portfolios, which could potentially impact their asset quality and performance.

Despite attempts to seek comments from the banks’ representatives, they were unavailable for response outside of regular business hours.

This downgrade comes amid growing apprehensions among investors regarding the vulnerability of regional banks to CRE risks. Earlier incidents, such as New York Community Bancorp’s unexpected quarterly loss attributed to distressed CRE loans, have already triggered concerns in the market, leading to a sell-off in shares of U.S. regional banks.

The aftermath of the COVID-19 pandemic has further compounded challenges for the sector, with uncertainties surrounding borrowing costs and office space occupancy rates. Analysts fear a potential increase in loan defaults, adding to the pressure on lenders.

Tuesday’s downgrade echoes similar events from a year ago when Silicon Valley Bank and Signature Bank collapsed, exacerbating worries about the overall health of U.S. regional banks.

Apart from CRE exposure, the sector is grappling with rising costs associated with retaining deposits amidst prevailing high interest rates.

As of the latest update, S&P Global has indicated negative outlooks for nine U.S. banks, representing 18% of those it rates. Most of these ratings are tied, at least partially, to substantial CRE exposures.

The broader implications of these downgrades underscore the importance of monitoring the resilience and adaptability of regional banks amid evolving economic conditions.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

27th March, 2024

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