Moody’s cuts credit ratings for banks amid commercial real estate pressures
Americans may have a tougher time obtaining loans after Moody’s cut the credit ratings of several small to mid-sized banks and said it may downgrade some of the nation’s biggest lenders.
The agency warned that the credit strength of the banking sector — which was thrown into crisis by the collapse of Silicon Valley Bank and Signature Bank earlier this year — will likely be tested by weaker profitability caused by high interest rates, declines in office demand as a result of remote work and depressed commercial real estate values.
“Collectively, these three developments have lowered the credit profile of a number of US banks, though not all banks equally,” Moody’s analysts wrote on Monday.
Moody’s cut the ratings on 10 smaller banks and put six larger institutions on notice that included US Bancorp, Bank of New York Mellon, State Street and Truist Financial.
It also changed its outlook to negative for 11 major lenders, including Capital One, Citizens Financial and Fifth Third ꧒Bank.
“Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital,” Moody’s said.
“This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline, with particular risks in some banks’ commercial real estate portfolios.”
The decision, coming on the heels of last week’s downgrade by Fitch of the US’ sovereign debt, triggered a decline in the Dow Jones Industrial Average, which was down more than 300 points in mid-day trading Tuesday.
The implications of Moody’s decision could jolt Americans already struggling to pay their bills because of high inflation.
“What this could mean for consumers is a potential sell off in the treasury markets, higher interest rates on mortgages and credit cards, a mild recession in 2024, and companies may have to tighten their belt leading to higher unemployment,” Ted Jenkin, a New Jersey-based financial advisor, told The Post.
Experts say that the lowered credit rating w✤ill only further ꧂dampen consumer confidence in the banking sector.
“Some potential pitfalls will be stricter lending, more ‘red tape,’ and higher internal regulatory as well as operational costs to the banks,” Mario Veneroso, a partner and wealth manager at Long Island-based Kingsview Wealth Management, told The Post.
Moody’s cautioned that banks with sizable unrealized losses that are not reflected in their regulatory capital ratios are vulnerable to a loss of confidence in the current high-rate environment.
The sweeping report comes against the backdrop of tightenꦦing monetary conditions after the fastest pace of interest rate increases by the Federal Reserve in decades slows demand and borrowing.
The collapse of the Silicon Valley Bank and Signature Bank of New York led to a run on deposits at several other regional banks — prompting the federal government to implement emergency measures.
Lar༺ge lenders such as JPMorgan Chase, Bank of America, and Wells Fargo collectively ponied up nearly $8.9 billion to the Federal Deposit Insurance Corporation in the wake of tꦫhe turmoil engulfing SVB and Signature.
JPMorgan, the nation’s largest bank, was the biggest contributor to the FDIC, paying some $3 billion to the federal insurance fund which was depleted in order to backstop uninsured depositors at the failed lenders,
The FDIC normally insures depositors who have up to $250,000 in their ban༺k accounts.
Fearing contagion in the banking sector, the safety net was widened ཧby the FDIC, Federal Reserve, and the Treasury Department after SVB and Signature fell into receivership.
The shaky banking system as well as 𒀰high inflation dampened prospects for a return to pre-pandemic normalcy, according to expe👍rts.
“When you couple this with the fastest interest rate high cycle we’ve ever seen by the Fed, we will experience tougher waters,” Veneroso told The Post.
“This will create ripples in our ecosystem for the American consumer, who most likely already has waning confidence for our banking system.”
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