US banking shares prices tumbled on Tuesday as credit ratings agency Moody’s cut the credit ratings of a number of small and mid-sized lenders and placed several big Wall Street names on negative review.
The credit ratings agency downgraded the ratings of 10 banks by one rung, while major lenders Bank of New York Mellon, US Bancorp, State Street, Truist Financial, Cullen/Frost Bankers and Northern Trust are now under review for a potential downgrade.
Moody’s also changed its outlook to negative for 11 banks, including Citizens Financial, Capital One, and Fifth Third Bancorp.
Among the smaller lenders downgraded were M&T Bank, Pinnacle Financial, BOK Financial (NASDAQ:BOKF) and Webster Financial (NYSE:WBS).
Moody's said the rating action reflected several sources of strain on the US banking sector: funding pressures, regulatory capital weaknesses and rising risks associated with commercial real estate exposures.
“US banks continue to contend with interest rate and asset-liability management risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody’s said.
Moody's thinks the macroeconomic outlook points to a US recession in late 2023/early 2024 and thinks the level and quality of banks' capital will be key to their ability to withstand downside asset risks as well as absorb the costs of business model adaptation.
The S&P 500 banks index fell 2.9% while blue-chips Bank of America Corp (NYSE:BAC), Wells Fargo & Co, Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) fell 3.7%, 2.7%, 3.2% and 2.8%, respectively.
Among the banks downgraded, M&T fell 4.1%, Pinnacle Financial eased 3.9%, Webster Financial (NYSE:WBS) slipped 3.6% and BOK Financial (NASDAQ:BOKF) slid 2.7%.