- The big three rating firm cited a “‘rapidly deteriorating operating environment” despite regulators’ efforts to shore up the industry.
In a harsh blow to an already-reeling sector, Moody’s Investors Service cut its view on the entire banking system to negative from stable.
The firm, part of the big three rating services, said Monday it was making the move in light of key bank failures that prompted regulators to step in Sunday with a dramatic rescue plan for depositors and other institutions impacted by the crisis. “We have changed to negative from stable our outlook on the US banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY,” Moody’s said in a report. The move followed action late Monday, when Moody’s warned it either was downgrading or placing on review for downgrade seven individual institutions. The moves are important because they could impact credit ratings and thus borrowing costs for the sector. In its downgrade of the entire sector, the rating agency noted the extraordinary actions taken to shore up impacted banks. But it said other institutions with unrealized losses or uninsured depositors still could be at risk.
The Federal Reserve established a facility to ensure that institutions hit with liquidity problems would have access to cash. The Treasury Department backstopped the program with $25 billion in funds and vowed that depositors with more than $250,000 at SVB and Signature would have full access to their funds.
But Moody’s said that concerns remain. “Banks with substantial unrealized securities losses and with non-retail and uninsured US depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings and capital,” the report said. Bank stocks rallied strongly despite the downgrade. The SPDR Bank exchange-traded fund rose nearly 6.5% in morning trade. Major indexes also were higher, with the Dow Jones Industrial Average up nearly 450 points, or 1.4%. Moody’s on Monday downgraded Signature Bank and said it would remove all ratings. It placed the following institutions under review for potential downgrades: First Republic, Intrust Financial, UMB, Zions Bancorp, Western Alliance and Comerica. The firm noted that an extended period of low rates combined with Covid pandemic-related fiscal and monetary stimulus have complicated bank operations. SVB, for instance, found itself with some $16 billion in unrealized losses from long-dated Treasurys it held. As yields rose, it eroded the principle value of those bonds and created liquidity issues for the bank, long a favorite of high-flying tech investors that couldn’t get financing at traditional institutions. SVB had to sell those bonds at a loss to meet obligations. Rates rose as the Federal Reserve battled an inflation surge that took prices to their highest levels in more than 40 years. Moody’s said it expects the Fed to continue hiking.
“We expect pressures to persist and be exacerbated by ongoing monetary policy tightening, with interest rates likely to remain higher for longer until inflation returns to within the Fed’s target range,” Moody’s said. “
US banks also now are facing sharply rising deposit costs after years of low funding costs, which will reduce earnings at banks, particularly those with a greater proportion of fixed-rate assets.” The firm said it expects the U.S. economy to fall into recession later this year, further pressuring the industry. NN: I have been analyzing balance sheets for over 40 years.. Including the pages and pages of foot notes. And after reading their financials with bullshit about their carbon initiative, diversity and the like i want to puke. With cover pages showing pictures of mixed race couple and LGBT kinder gentler soul mates. I could care less when they fuck, how they fuck, what they fuck as long as it is not me. I can tell you they could ALL win the Booker Prize for the best fiction. They blow politically correct blue sky up your ass. As they use their Worthington business school talents to hide the fact they are ALL broke. And they fucked up big time because they locked in (bought) 3% long term treasury instruments that are now UNDER WATER. AND TO MAKE SURE THEY REALLY FUCKED UP THEY BOUGHT LONG TERM MBA, CDO long term bundles yielding 2 to 3%. At the time they borrowed short term money at 1% so they looked like MSSSSSS cool and Girly Boy geniuses. Now that THE COST OF FUNDS is 5% SOON TO BE 8% THEY ARE LOSING THEIR ASSES. I do not want to here about more Dode Frank /Dodgee/ Frankie legislation. Especially when they allow banks to book their fixed assets at the purchase price. Not marked to market. The banks of America are hiding a trillion dollars in unrealized losses. And the best Moody’s can do is downgrade the banker ass holes to negative instead of stone cold broke. Why give your safe secure retirement funds to a investment fund that is broke invested in broke banks and corporations. Or worse yet put your funds on deposit at a broke bank that is paying 2%? When you can buy safe secure US treasuries 6 month at damn near 5%. While waiting for a 6% to 8% zero.