Bank stocks took a significant hit in the US market on Tuesday as credit rating agency Moody’s slashed the credit ratings of 10 midsized US banks overnight. This move comes as Moody’s cites potential declines in deposits and weaker profitability among the reasons for the downgrade.
The downgrade announcement has reignited concerns among investors about the overall health of the US banking sector. Earlier this year, the sector faced challenges following the collapse of three regional lenders, which had a noticeable impact on its stability. As a result of this recent development, the KBW Bank index experienced a notable decline of 2.8 percent.
Moody’s has also indicated that four larger financial institutions are under review, suggesting that further downgrades could be imminent. Shares of US Bancorp fell by 2.4 percent, and Truist Financial suffered a loss of 3.1 percent, both appearing on Moody’s downgrade list.
Moody’s decision includes not only the midsized banks but also affects some of the well-known Wall Street giants. The agency has placed major lenders such as Bank of New York Mellon, U.S. Bancorp, State Street, Truist Financial, Cullen/Frost Bankers, and Northern Trust on negative review, indicating the potential for further downgrades.
Furthermore, Moody’s shifted its outlook to negative for 11 banks, including Capital One, Citizens Financial, and Fifth Third Bancorp.
A selection of smaller lenders also experienced official ratings downgrades, including M&T Bank, Pinnacle Financial, BOK Financial, and Webster Financial.
Moody’s analysts, Jill Cetina and Ana Arsov, expressed that US banks are grappling with interest rate and asset-liability management risks, which could impact liquidity and capital. The ongoing transition away from unconventional monetary policies is leading to a decrease in systemwide deposits, and rising interest rates are affecting the value of fixed-rate assets.
