Moody’s Sounds Warning on Credit Ratings of 6 Big US Banks

Moody's is currently reviewing the credit ratings of six major U.S. banks, including Bank of New York Mellon, State Street, and Northern Trust, for a possible downgrade. The agency announced late Monday that this decision is due to ongoing strain within the U.S. banking sector, including increased funding pressures and potential weaknesses in the required capital levels.

Should these banks receive lower credit ratings, their funding costs could rise significantly. The news has already affected U.S. stock futures, with the Dow expected to open 250 points lower, a 0.7% decline, and similar drops in S&P 500 and Nasdaq futures.

The U.S. banking industry faced turmoil earlier this year with the collapse of Silicon Valley Bank, Signature Bank, and First Republic. Now, Moody's is also closely monitoring Truist, Cullen Frost, and U.S. Bancorp, citing the same concerns, but with added emphasis on the risks associated with commercial real estate exposures.

Since the pandemic, the widespread shift to remote work has caused a decline in the value of U.S. office properties. This trend has raised concerns that banks, which finance many commercial real estate transactions, could face losses. Regional and community banks may be particularly vulnerable.

The second quarter earnings for U.S. banks have revealed material increases in funding costs and pressures on profitability. This is partly attributable to a series of sharp interest rate hikes in the U.S., according to the agency. It seems the banking industry is navigating challenging times, with various factors contributing to the current situation.