Moody’s lowers its credit ratings on U.S. banks

Moody’s lowered its credit ratings on a bunch of U.S. based small and mid-sized banks on Tuesday and placed some of their bigger peers on negative review as well.

U.S. banks included in Moody’s note

The big banks that are being reviewed and could potentially be downgraded include Truist Financial, Bank of New York Mellon Corp (NYSE: BK), Northern Trust, State Street, U.S. Bancorp, and Cullen/Frost Bankers.

The firm also turned negative on 11 banks, including Fifth Third Bancorp, Citizens Financial, and Capital One. Its analysts Ana Arsov and Jill Cetina said in a research note today:

U.S. banks continue to content with interest rate and asset-liability management risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains deposits.

The Dow Jones U.S. Banks Index is down nearly 3.0% on Tuesday.

Moody’s sees higher rates as a headwind

Moody’s also cited elevated interest rates for lowering its credit rating on U.S. banks as they weigh on fixed-rate assets. Last month, the U.S. central bank raised rates by another 25 basis points as Invezz reported here.

Smaller banks that the firm downgraded this morning include Pinnacle Financial, Webster Financial, M&T Bank Corp (NYSE: MTB) and BOK Financial. Analysts Arsov and Cetine also wrote today:

Many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital. This comes as a mild U.S. recession is on the horizon for early 2024.

They agreed that asset quality currently looks solid but warned that it will likely change moving forward.