S&P Global Ratings is downgrading its credit outlook for several regional banks including KeyCorp, Comerica, Valley National, and UMB Financial — this just two weeks after Moody’s Investors Service cut its ratings for several small to mid-sized lenders.
The credit ratings agency said in a statement on Monday that high interest rates as well as sagging confidence in the banking sector compelled it to lower its grades by one notch.
KeyCorp, the Cleveland-based retail bank, had its long-term ratings lowered by S&P from “BBB+” to “BBB.”
“The downgrade reflects S&P Global Ratings’ view that higher interest rates will continue to pressure profitability for longer and to a greater degree at Key than at Category IV bank peers,” S&P Global Ratings said.
Ratings for Zions Bancorp as well as River City Bank and S&T Bank were also lowered.
S&P wrote that depositors have “shifted their funds into higher-interest-bearing accounts, increasing banks’ funding costs.”
“The decline in deposits has squeezed liquidity for many banks while the value of their securities — which make up a large part of their liquidity — has fallen,” S&P wrote.
Analysts at the agency warned that high interest rates threaten the value of loans for borrowers who may need to refinance.
“While many measures of asset quality still look benign, higher rates are pressuring borrowers,” S&P wrote.
“Banks with material exposures to commercial real estate, especially in office loans, could see some of the greatest strains.”
S&P’s analysis sent bank stocks lower just before the opening bell on Wall Street on Tuesday.
KeyCorp stock was trading nearly 2% down in pre-market activity while Comerica shares were down 1.73%.
Earlier this month, Moody’s cut the ratings on 10 smaller banks and put six larger institutions on notice that included US Bancorp, Bank of New York Mellon, State Street and Truist Financial.
It also changed its outlook to negative for 11 major lenders, including Capital One, Citizens Financial and Fifth Third Bank.
The US banking sector has been on shaky ground since the collapse of Silicon Valley Bank and Signature Bank of New York earlier this year.
The federal government also seized control of First Republic Bank and oversaw its sale to JPMorgan Chase.
The fall of First Republic was the second-largest bank failure in US history.
In the last year, the KBW Bank Index, which tracks the performance of 24 banking stocks, has fallen 20%.
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