Moody’s sees harder times ahead for all US banks and puts six on ‘downgrade’ watch | CNN Business

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Moody’s Investors Service cut its outlook for the entire US banking sector and placed six US banks on review for potential credit rating downgrades, in the wake of last week’s collapse of Silicon Valley Bank.

The credit ratings firm said it expects more banks will come under pressure after SVB’s failure — particularly those with large hoards of uninsured deposits and long-term Treasury bonds that have crumbled in value. Moody’s said it expects pressure on the banking sector to persist as the Fed continues to hike interest rates to combat inflation.

Another concern: US banks are raising the interest rates they pay on savings accounts. Although they hope the higher rates will retain customers worried by the collapse of SVB, that could also eat into profits, Moody’s warned.

The good news, Moody’s said, is that America’s banking system is generally healthy. It has enough cash and liquid assets to withstand an economic downturn. The bad news, for banks anyway, is that US regulators may require them to hold more capital after SVB’s rapid failure.

SVB was brought down by a bank run, but its exposure to long-term Treasuries that tumbled in value during the Fed’s historic rate-hike campaign aggravated its liquidity problem. Moody’s predicts the newly “stressed operating environment” for banks could lead some to lend less, buy back fewer shares or cut dividends to preserve capital in case of emergency.

Also, the credit ratings firm late Monday downgraded Signature Bank deep into junk territory following that bank’s failure. Ratings downgrades can make it more expensive for companies to borrow money.

Moody’s warned it could similarly downgrade First Republic Bank

(FRC), Zions

(ZION), Western Alliance

(WAL), Comerica

(CMA), UMB Financial

(UMBF) and Intrust Financial. The firm cited the “extremely volatile funding conditions for some US banks exposed to the risk of uninsured deposit outflows.”

The move comes after shares of regional banks got clobbered on Monday even after the US federal government stepped in with a massive intervention designed to protect depositors and prevent further bank runs. Regional bank shares rebounded in premarket trading on Tuesday.

For San Francisco-based First Republic, Moody’s pointed to the bank’s “high reliance on more confidence-sensitive uninsured deposit funding,” high unrealized losses in its bond holdings and a “low level of capitalization” relative to its peers.

First Republic has a high amount of deposits above the FDIC’s insurance limit, Moody’s said, noting this makes the bank’s funding profile “more sensitive to rapid and large withdrawals from deposits.”

After plunging 62% on Monday, First Republic shares climbed 56% Tuesday.