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Tag: Corporate Credit Ratings

  • U.S. banks and regional lenders slide across the board as S&P is latest to downgrade ratings

    U.S. banks and regional lenders slide across the board as S&P is latest to downgrade ratings

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    U.S. banks and regional banks fell across the board on Tuesday, after S&P Global Ratings downgraded five smaller players after a review of risk related to funding, liquidity and asset quality with a focus on office commercial real estate.

    Adding to the gloom, Republic First Bancorp. Inc.’s stock
    FRBK,
    -41.90%
    tanked by 39%, after Nasdaq told the company that its stock would be delisted on Wednesday, after it failed to file its annual report in time.

    S&P’s move comes just days after Fitch Ratings analyst Christopher Wolfe reduced his operating environment score for U.S. banks to aa- from aa due to the unknown path of interest rate hikes and regulatory changes facing the sector.

    And Moody’s Investors Service just two weeks ago upset investors when it downgraded some lenders and said it was reviewing ratings on bigger banks, including Bank of New York Mellon
    BK,
    -1.71%    ,
    State Street
    STT,
    -1.59%
    and Northern Trust
    NTRS,
    -1.73%    .

    For more, see: Bank asset quality, weaker profits spark Moody’s reviews and downgrades as it weighs potential 2024 recession

    The S&P 500 Financials Sector has fallen for seven consecutive days, and is on pace for its longest losing streak since April 7, 2022, when it also fell for seven straight trading days.

    Individual bank names are also performing poorly, with Goldman Sachs Group Inc.
    GS,
    -0.94%
    and Citigroup Inc.
    C,
    -1.68%
    down for 10 of the past 11 days and Charles Schwab Corp.
    SCHW,
    -4.84%
    down 11 straight days.

    Goldman alone has fallen for seven straight days for a total loss of 6.3%. It’s the longest losing streak since Feb. 28, 2020, when it also fell for seven straight days as the pandemic was taking hold.

    The KBW Nasdaq Regional Banking Index
    KBWR
    is down for 11 straight days. and the KBW Nasdaq Bank Index
    BKX
    is down for seven straight days.

    S&P downgraded Associated Banc. Corp. 
    ASB,
    -4.20%    ,
     Comerica Inc.
    CMA,
    -3.82%    ,
     KeyCorp
    KEY,
    -3.58%    ,
     UMB Financial Corp. 
    UMBF,
    -2.42%
    % and Valley National Bancorp. 
    VLY,
    -4.19%
    by one notch and said the outlook on all five is stable.

    Read also: More challenges await U.S. banks but analysts think the worst may be over for the year

    The rating agency affirmed ratings on Zions Bancorp
    ZION,
    -4.17%
     and maintained a negative outlook, meaning it could downgrade them again in the near-term. And it affirmed ratings and a stable outlook on Synovus Financial Corp. 
    SNV,
    -3.37%
     and Truist Financial Corp. 
    TFC,
    -1.36%

     “We reviewed these 10 banks because we identified them as having potential risks in multiple areas that could make them less resilient than similarly rated peers ,” S&P said in a statement.

    “For instance, some that have seen greater deterioration in funding—-as indicated by sharply higher costs or substantial dependence on wholesale funding and brokered deposits—-may also have below-peer profitability, high unrealized losses on their assets, or meaningful exposure to CRE.”

    The steep rise in interest rates orchestrated by the Federal Reserve over the past year has raised deposit costs as banks are now competing for savers seeking higher returns and that’s forced some to pay up on deposits and discourage their clients from heading to other institutions and instruments.

    The sector has been skittish this year following the collapse of Silicon Valley Bank and other lenders that led to a run on deposits at a number of regional lenders.

    However, S&P said about 90% of the banks it rates have stable outlooks and just 10% have negative ones. None have positive outlooks.

    The widespread stable outlooks shows that stability in the U.S. banking sector has improved significantly in recent months.

    S&P is expecting FDIC-backed banks in aggregate to earn a relatively healthy ROE of about 11% in 2023.

    KeyCorp. and Comerica both fell more than 3% on the news. Of the two, KeyCorp. has more outstanding debt and its 10-year bonds widened by about 5 to 10 basis points, according to data solutions provider BondCliq Media Services.

    As the following chart shows, the bonds have seen better selling on Wednesday with buyers emerging around midmorning.


    KeyBank net customer flow (intraday). Source: BondCliQ Media Services

    The next chart shows customer flow over the last 10 days.


    Most active KeyBank issues with net customer flow (last 10 days). Source: BondCliQ Media Services

    The next chart shows the outstanding debt of the downgraded banks, with KeyCorp. clearly the leader with almost $16 billion of bonds.


    Outstanding S&P downgraded banks debt USD by maturity bucket. Source: BondCliQ Media Services

    Don’t miss: Capital One confirms roughly $900 million sale of office loans as property sector wobbles

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  • Hawaiian Electric’s stock slides 26% as S&P downgrades credit to junk on risk from Maui wildfire lawsuits

    Hawaiian Electric’s stock slides 26% as S&P downgrades credit to junk on risk from Maui wildfire lawsuits

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    Hawaiian Electric Industries Inc.’s stock added to losses Tuesday, tumbling 26% after S&P Global Ratings downgraded its rating on the utility company to junk.

    S&P Global Ratings cut its rating on the company HE to BB- and placed it on CreditWatch negative, meaning the rating agency could downgrade it again in the near term.

    The devastating…

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  • Warren Buffett Isn’t Worried About the Fitch Downgrade

    Warren Buffett Isn’t Worried About the Fitch Downgrade

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    This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.

    https://www.barrons.com/articles/warren-buffett-berkshire-hathaway-fitch-downgrade-t-bills-2a6d71a9

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    Berkshire Hathaway


    CEO Warren Buffett says he’s not concerned about the Fitch downgrade of the U.S. government’s credit rating, saying his company continues to buy $10 billion of Treasury bills each week.

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  • Moody’s Downgrades 11 Regional Banks, Including Zions, U.S. Bank, Western Alliance

    Moody’s Downgrades 11 Regional Banks, Including Zions, U.S. Bank, Western Alliance

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    Moody’s Downgrades 11 Regional Banks, Including Zions, U.S. Bank, Western Alliance

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  • First Republic Bank’s debt cut to junk by Moody’s

    First Republic Bank’s debt cut to junk by Moody’s

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    Moody’s Investors Service downgraded its credit rating on First Republic Bank to junk late Friday, citing a “deterioration in the bank’s financial profile.”

    First Republic’s
    FRC,
    -32.80%
    debt rating was cut to B2 from Baa1, Moody’s said. Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s debt earlier this week.

    The downgrade reflects “the deterioration in the bank’s financial profile and the significant challenges First Republic Bank faces over the medium term in light of its increased reliance on short-term and higher cost wholesale funding due to deposit outflows,” Moody’s analysts said in a release.

    They cited various recent developments with First Republic, including the company’s Thursday disclosure that over the previous week its Federal Reserve borrowings ranged from $20 billion to $109 billion. Also Thursday, the bank received a $30 billion deposit infusion from 11 major U.S. banks.

    “Moody’s believes the high cost of these borrowings, combined with the high proportion of fixed rate assets at the bank, is likely to have a large negative impact on First Republic’s core profitability in coming quarters,” the analysts said. “In addition, the rating agency noted that while the news of the banking consortium’s deposits is positive in the short-run, the longer-run path for the bank back to sustained profitability remains uncertain.”

    First Republic is reportedly looking to raise money from other banks or private-equity firms by selling additional shares, according to the New York Times.

    Shares of the company have plunged 80% from the close of trading on March 8, just before Silicon Valley Bank spooked investors with an update on its business and a planned stock sale. First Republic lost 33% in Friday’s session despite the deposit arrangement with the large banks. Shares were down another 6% in the extended session Friday.

    Moody’s said its outlook was maintained at “rating under review.” That review for downgrade, it said, “reflects the continuing challenges to the bank’s medium-term credit profile in light of its significantly eroded deposit base, increased reliance on short-term wholesale funding and sizeable volume of unrealized losses on its investment securities.”

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  • Stocks could fall ‘another easy 20%’ and next drop will be ‘much more painful than the first’, Jamie Dimon says

    Stocks could fall ‘another easy 20%’ and next drop will be ‘much more painful than the first’, Jamie Dimon says

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    JPMorgan Chase & Co.
    JPM,
    -0.93%
    CEO Jamie Dimon warned investors on Monday that he expects markets to remain volatile for the foreseeable future, and that the S&P 500 could easily fall another 20% as the Federal Reserve continues to raise interest rates.

    Asked by CNBC about where he expects stocks to bottom, Dimon said he couldn’t say for sure, but that it’s easy to imagine the S&P 500 falling by another 20% as volatile markets become even more “disorderly” as rates continue to climb.

    “It may have a ways to go. It really depends on that soft-landing, hard-landing thing and since I don’t know the answer to that it’s hard to answer…it could be another easy 20%,” Dimon said.

    “The next 20% could be much more painful than the first. Rates going up another 100 basis points will be a lot more painful than the first 100 because people aren’t used to it, and I think negative rates, when all is said and done, will have been a complete failure.”

    Europe is already in a recession, Dimon said, and he expects a recession in the U.S. will arrive within “six to nine months.”

    An eventual economic downturn in the U.S. could range from “very mild to quite hard.” Ultimately, it will depend on the outcome of the war in Ukraine, Dimon added.

    Since it’s impossible to “guess” exactly how bad things might get for both the economy and markets, investors and companies should “be prepared” for the worst-case scenario, Dimon said.

    Companies should start shoring up their balance sheets now, Dimon said, adding that “if you need money, go raise it.”

    He also warned that cracks are starting to appear in credit markets, and that a full-blown panic could emerge somewhere in the universe of global debt.

    “The likely place you might see more of a crack or a little bit more of a panic is in credit markets. And it might be ETFs, it might be a country, it might be something you don’t suspect. If you make a list of all the credit crises…you cannot predict where they came from, although I think you can predict that this time it will happen,” he said.

    After assuring the public that the Fed would do its best to minimize the fallout for the U.S. economy, Federal Reserve Chairman Jerome Powell has recently adjusted his rhetoric to suggest that Americans likely won’t be spared from another recession as the Fed’s hopes for a “soft landing” dim.

    In September, the central bank cut its projections for U.S. economic growth to just 0.2% for 2022 and 1.2% in 2023.

    JPMorgan is already becoming “very conservative” with its lending standards, Dimon added. The New York-based megabank is expected to report third-quarter earnings on Friday.

    Dimon’s comments helped to drive U.S. stocks to their lows of the session on Monday as the main indexes were on track for a fourth day of losses. In recent trade, the S&P 500
    SPX,
    -0.75%
    was down 0.3%, the Dow Jones Industrial Average
    DJIA,
    -0.32%
    flat, and the Nasdaq Composite
    COMP,
    -1.04%
    off 0.5% as major indexes bounced off session lows.

    The longtime bank chief warned earlier this year that he saw an “economic hurricane” headed for the U.S. In August, he warned that chances of a “harder recession” were on the rise.

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