S&P Global followed Moody’s in cutting its credit ratings and outlook on multiple U.S. regional banks on Monday, saying higher funding costs and troubles in the commercial real estate sector will likely test the credit strength of lenders.
A relentless rate-hike campaign by the U.S. Federal Reserve has raised deposit costs at banks, which have been forced to pay out higher interest to keep depositors from fleeing to other high-yielding alternatives.
According to Reuters, S&P cut its ratings on Associated Banc-Corp (ASB.N) and Valley National Bancorp (VLY.O) on funding risks and higher reliance on brokered deposits, while UMB Financial Corp (UMBF.O), Comerica Bank (CMA.N) and KeyCorp (KEY.N) were downgraded on large deposit outflows and prevailing higher interest rates.
KeyCorp and Comerica shares were down nearly 1% each in premarket trading.
The outlook of S&T Bank and River City Bank was cut to “negative” from “stable” by the S&P, citing higher CRE exposure.
The agency’s action will make borrowing costlier for the ailing banking sector that is looking to shake off the effects of the crisis from earlier this year, when the collapse of Silicon Valley Bank and Signature Bank sparked a loss of confidence and led to a run on deposits at several regional lenders.
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Borrowing costs globally have also surged, with the U.S. Treasury yields hitting their highest in 16 years as the bond market rout entered its sixth week on Tuesday, even as U.S. stock index futures gained, boosted by megacap growth stocks.
The rating agency’s action came weeks after similar downgrades by its peer Moody’s, which earlier this month lowered ratings on 10 U.S. banks and placed six, including Bank of New York Mellon (BK.N), US Bancorp (USB.N), State Street (STT.N) and Truist Financial (TFC.N), on review for potential downgrades.
An analyst at Fitch, the last of the three chief rating agencies, also told CNBC last week that several U.S. banks, including JPMorgan Chase (JPM.N), could see downgrades if the sector’s “operating environment” were to deteriorate further.