Credit rating agency Moody’s has hinted it may downgrade six large US banks including Bank of New York Mellon, State Street and Northern Trust, reported CNN.
Moody’s cited “ongoing strain” in the US banking sector while issuing a warning for three banks. Apart from this is also blamed increasing pressures on funding and potential “weaknesses” in the fund that capital lenders are required to hold.
As per the media outlet if the downgrade goes through then the funding costs for those banks could increase.
Taking cue from the news, the US stock futures saw a decline, with the Dow set to open 250 points, or 0.7%, lower. S&P 500 futures also fell 0.7%, and Nasdaq futures were 0.8% lower.
The news is also concerning US banking industry was already shaken earlier this year when Silicon Valley Bank, Signature Bank and First Republic banks collapsed one after another.
CNN reported that the other three banks on the Moody’s radar are Truist (TFC), Cullen Frost and US Bancorp (USB). The rating agency said the same reason for its action but included “rising risks associated with commercial real estate exposures.”
The media outlet reported that the value of US offices is declining as remote work has become widespread since the COVID-19 pandemic. This has resulted in fears that banks, which finance many commercial real estate deals, could faces losses. Regional and community banks in the US are are particularly exposed to these loans.
“Most regional banks have comparatively low regulatory capital versus the largest US banks and global peers,” Moody’s noted.
It also shared that US banks’ second-quarter earnings reflected “material increases” in funding costs and pressures on their profitability largely due to the interest rate hikes in the United States by the Federal Reserve.
Moody’s also downgraded 10 smaller US banks Monday, including Commerce Bancshares (CBSH), BOK Financial Corporation and M&T Bank Corporation.
Explaining the action, the agency cited, among other factors, a rising risk that lenders’ assets will decline in value, in particular for small and mid-sized banks with large exposures to commercial real estate.