Fitch may soon have to downgrade a bunch of U.S. banks

U.S. banks stocks are trending down this morning after Fitch Ratings warned that it may have to downgrade a bunch of them, including JPMorgan Chase & Co (NYSE: JPM).

Fitch could go to A+ on U.S. banking industry

The rating agency lowered its score on “operating environment” of the country’s banks by one-notch to AA- in June. At the time, it had cited reasons including rates-related uncertainty and pressure on overall rating of the United States.

More importantly, a further downgrade to A+ will make the firm revisit its ratings on over 70 U.S. banks in its coverage, said Chris Wolfe – a Fitch analyst in an exclusive interview with CNBC.  

If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions.

Fitch recently lowered its U.S. long-term rating

Note that individual banks can’t command a rating higher than the operational environment of the industry at large. So, if the environment is downgraded to A+, the likes of JPMorgan and the Bank of America Corp (NYSE: BAC) will have to go down a notch as well.

And that’s just for the big banks. The weaker lenders in such an event may end up with a non-investment-grade status.

The stock market news arrives only days after Fitch lowered its U.S. long-term rating to AA+ on growing debt and political dysfunction. Peer Moody’s recently trimmed its ratings on a host of U.S. banks as well (read more).

The Dow Jones U.S. Banks Index is down more than 2.0% on Tuesday.