Business Standard

S&P Global downgrades multiple US banks on growing liquidity worries

Borrowing costs globally have also surged, with the US Treasury yields hitting their highest in 16 years as the bond market rout entered its sixth week on Tuesday

S&P, standard, poor, standard and poor's

Standard and Poor's headquarter in New York


Listen to This Article

S&P Global followed Moody’s in cutting its credit ratings and outlook on multiple US regional banks, 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 US 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.

S&P on Monday cut its ratings on Associated Banc-Corp and Valley National Bancorp on funding risks and higher reliance on brokered deposits, while UMB Financial Corp , Comerica Bank and KeyCorp were downgraded, citing large deposit outflows 
and prevailing higher interest rates.

KeyCorp shares fell 1 per cent while Comerica, Valley National, UMB Financial and Associate Banc-Corp dipped between 0.3 per cent and 0.8 per cent.

S&P also lowered the outlook of S&T Bank and River City Bank to “negative” from “stable”, 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.

Borrowing costs globally have also surged, with the US Treasury yields hitting their highest in 16 years as the bond market rout entered its sixth week on Tuesday.

S&P’s action came weeks after similar downgrades by its peer Moody’s, which lowered ratings on 10 US banks and placed six, including Bank of New York Mellon, US Bancorp, State Street and Truist Financial, on review for potential downgrades.

An analyst at Fitch, the last of the three chief rating agencies, told CNBC last week that several US banks, including JPMorgan Chase, could see downgrades.

                                       Existing-home sales slide on higher rates
Sales of previously owned US homes fell in July to the lowest level since the start of the year, constrained by a lack of inventory and higher borrowing costs. Contract closings decreased 2.2 per cent from a month earlier to a 4.07 million annualised pace, National Association of Realtors data showed Tuesday. The rate, which is close to the slowest since 2010, was weaker than nearly all estimates in a Bloomberg survey of economists. 

Sales were down more than 18 per cent from a year earlier on an unadjusted basis. Homeowners have been discouraged from listing their properties as mortgage rates have more than doubled over the past few years, keeping asking prices elevated. More recently, the average 30-year fixed rate has pushed above 7 per cent to the highest level in more than two decades, suggesting demand will continue to struggle.The combination of inventory constraints in the resale market and higher borrowing costs is steering some prospective buyers toward new construction. Bloomberg

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Aug 22 2023 | 11:54 PM IST

Explore News