Moody’s Places Six US Lenders Under Review for Downgrade
Moody’s Investors Service has placed six US lenders on review for downgrade, signalling mounting concerns about the health of regional financial firms in the wake of the collapse of Silicon Valley Bank.
The credit rating agency is assessing the creditworthiness of San Francisco-based First Republic Bank, Phoenix-based Western Alliance Bancorporation, Dallas-based Comerica Bank, Kansas City’s UMB Financial, Utah’s Zions Bank and Wichita-based Intrust Financial. Moody’s cites worries over the lenders’ reliance on uninsured deposit funding and unrealized losses in their asset portfolios.
The move follows a huge selloff of regional banks’ shares on Monday, led by a 62 percent dive of First Republic Bank. The share price of First Republic jumped 50 percent on Tuesday, while other lenders saw a more moderate recovery. Western Alliance Bank Corp.Intrust Financial Corp., UMB Financial Corp., and Zions Bancorp. and Comerica Inc. all saw their share prices down by more than 20 percent at points on Monday.
The market slump was triggered by fears of wider issues, with First Republic announcing on Sunday that it had secured access to additional liquidity from the Federal Reserve and JPMorgan Chase & Co. The bank also revealed its unused liquidity to fund operations is now more than $70 billion.
The US Federal Reserve has been raising its key interest rate by as much as 0.75 percentage points, although in February its rate-setters voted for a smaller 0.25 percentage point increase. This has increased the pressure on regional banks, with the Bank of Japan (BoJ) noting that “Japanese financial institutions’ direct exposure to Silicon Valley Bank is small, and thus the impact is likely limited.”
The situation has been compounded by the failure of Silicon Valley Bank, Silvergate and most recently, Signature Bank, all of which catered to wealthy clients and companies whose deposits exceed the threshold for FDIC insurance. First Republic also specializes in this area, having made a notorious 1% interest mortgage loan to Mark Zuckerberg in 2012.
Moody’s analysts noted that if First Republic were to face higher-than-anticipated deposit outflows and liquidity backstops proved insufficient, the bank could need to sell assets, thus crystallizing unrealized losses on its securities.
0. “Moody’s weighs downgrade for six US banks following SVB collapse” The Hill, 14 Mar. 2023, https://thehill.com/business/3899531-moodys-weighs-downgrade-for-six-us-banks-following-svb-collapse/
1. “Moody's Puts First Republic, Five US Banks on Downgrade Watch” Bloomberg, 14 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-14/moody-s-puts-first-republic-five-us-banks-on-downgrade-watch
2. “US banking shares start to rebound after SVB collapse” BBC, 14 Mar. 2023, https://www.bbc.com/news/business-64949786
3. “SF-based First Republic Bank stock plunges after SVB fiasco” SFGATE, 13 Mar. 2023, https://www.sfgate.com/tech/article/first-republic-bank-silicon-valley-17836823.php
4. “Silicon Valley Bank: US banking sector outlook downgraded, but regional bank shares surge – business live” The Guardian, 14 Mar. 2023, https://www.theguardian.com/business/live/2023/mar/14/global-markets-silicon-valley-bank-collapse-banking-shares-boj-ecb-business-live