TFC - S&P downgrades 5 regional banks amid higher for longer rates asset quality risks

2023-08-22 04:54:25 ET

S&P Global Ratings has downgraded five regional U.S. banks, citing tough operating conditions, although most of their outlooks are now stable on account of improved stability as deposit declines have been more modest than feared.

"Amid higher for longer interest rates, we expect further asset quality deterioration," it warned. "Banks with material exposures to commercial real estate, especially in office loans, could see some of the greatest strains on asset quality."

Credit ratings for Comerica ( NYSE: CMA ) and Keycorp ( NYSE: KEY ) were lowered to 'BBB' from 'BBB+', on account of large deposit outflows and higher for longer rates.

Credit ratings on Valley National Bancorp ( NASDAQ: VLY ) and Associated Banc-Corp ( NYSE: ASB ) were cut to 'BBB-' from 'BBB', given worsening funding metrics and a higher reliance on brokered deposits. UMB ( NASDAQ: UMBF ) was cut to 'BBB+' from 'A-', reflecting weak capital ratios.

However, their outlooks were revised to stable, reflecting improved stability, continued solid earnings and relatively good funding metrics.

"Most rated banks have manageable exposures to the riskiest parts of commercial real estate, especially office loans, and they have taken steps to build capital and reduce risks," S&P noted .

S&T Bank's ( STBA ) outlook was cut to negative from stable, due to funding pressures from significant deposit outflows. River City Bank's ( OTCPK:RCBC ) outlook was lowered to negative as its concentration in commercial real estate could weigh on earnings.

S&P affirmed its negative outlook on Zions Bancorporation ( ZION ), given deposit and margin pressures. It maintained stable outlooks on Synovus Financial ( SNV ) and Truist ( TFC ).

The rating changes come two weeks after Moody's downgraded multiple small and mid-sized banks, and placed six larger lenders on review, to reflect funding pressures, regulatory capital weaknesses and commercial real estate exposure.

More on U.S. banks

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• Moody's downgrades U.S. banks on funding risk, office exposure
• S&P 500 Drops As Outlook For Banks, China Gets Worse
• KBE: Rising Interest Rates May Lead To Resumption Of Downside
• Office CMBS Delinquency Rate Spikes; Bank-Held Office Mortgages Also Hit

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