S&P downgrades multiple U.S. banks citing ‘tough’ operating conditions

S&P Global recently lowered credit ratings and revised outlooks for several U.S. banks, echoing a similar move by Moody’s. The warning highlights concerns about funding risks and weaker profitability that are likely to test the credit strength of the banking sector.

S&P downgraded the credit ratings of Associated Banc-Corp and Valley National Bancorp due to funding risks and a higher reliance on brokered deposits. It also downgraded UMB Financial Corp, Comerica Bank, and Keycorp, pointing to substantial deposit outflows and the impact of higher prevailing interest rates.

The sharp increase in interest rates is putting pressure on the funding and liquidity of many U.S. banks, as noted by S&P. The agency also emphasized that deposits held by banks insured by the Federal Deposit Insurance Corporation (FDIC) are likely to continue declining as long as the Federal Reserve is engaged in quantitative tightening.

Additionally, S&P revised the outlook of S&T Bank and River City Bank to negative from stable, partly due to their exposure to high levels of commercial real estate.

Moody’s had taken similar actions earlier, downgrading the ratings of ten banks by one notch and placing six banking giants, including Bank of New York Mellon, US Bancorp, State Street, and Truist Financial, under review for potential downgrades.

The banking sector faced a crisis of confidence after the collapse of Silicon Valley Bank and Signature Bank earlier in the year, leading to deposit withdrawals from numerous regional banks despite emergency measures taken by authorities to bolster confidence.