Citing Commercial Real Estate (CRE) issues and interest rate risk, Moody’s downgraded 10 banks, with 6 more on review, and 11 with a negative outlook. 
CBS News reports Banks Get a Downgrade from Moody’s.
In its report, Moody’s highlighted that some of the issues that caused the banking crisis earlier this year haven’t disappeared; banks are still at risk for depositors to withdraw their funds, while the current higher-interest rate environment is knocking down the value of investments lenders made when rates were super low.
The rating agency added that asset risks are also rising for small- and mid-sized banks, especially those with large corporate real estate (CRE) holdings.
“Elevated CRE exposures are a key risk given sustained high interest rates, structural declines in office demand due to remote work, and a reduction in the availability of CRE credit,” it noted.
Smaller banks are especially at risk, given that they have “sizable unrealized economic losses” that could cause investors to lose confidence, it stated in the Monday report.
Ten Downgrades
- Commerce Bancshares
- BOK Financial Corporation
- M&T Bank Corporation
- Old National Bancorp
- Prosperity Bancshares
- Amarillo National Bancorp
- Webster Financial Corporation
- Fulton Financial Corporation
- Pinnacle Financial Partners
- Associated Banc-Corp
Six Under Review
- Bank of New York Mellon Corporation
- Northern Trust Corporation
- State Street Corporation
- Cullen/Frost Bankers
- Truist Financial Corporation
- U.S. Bancorp
Eleven Negative Outlooks
- PNC Financial Services Group
- Capital One Financial Corporation
- Citizens Financial Group
- Fifth Third Bancorp
- Huntington Bancshares
- Regions Financial Corporation
- Cadence Bank
- F.N.B. Corporation
- Simmons First National Corporation
- Ally Financial
- Bank OZK
IAT Regional Bank ETF Monthly Chart
Technically speaking, the chart looks like a disaster in waiting from an Elliott Wave perspective. A 5th wave seems due and possibly just started.
Support is at 22 level, That’s about a 42 percent drop from here.
Fundamentally Speaking
Every bank listed above will be fearful of new loans. They are all hoping to ride out the storm, praying for rate cuts that may be a long time away.
Meanwhile, the collective lot is tightening credit standards.
US and EU Corporations Slam the Brakes on Demand for Business Loans
Yesterday, I noted US and EU Corporations Slam the Brakes on Demand for Business Loans
Attitude Change
Q: Why are Companies Slamming the Brakes?
A: Recession risk and profit riskIt’s not just companies who are slamming the brakes. Tighter lending standards across the board shows banks are doing the same.
Large and small banks alike are getting clobbered on rising yields. This led to the collapse of Silicon Valley Bank (SVB).
Banks raise lending standards, the economy slows a bit, corporations get fearful of falling profits so they do not want to expand.
The cycle feeds on itself until something breaks. And it’s breaking now.
The Cycle Feeds On Itself
These downgrades will cause further tightening of lending standards, and not just by the banks cited by Moody’s.
Every bank will now be fearful of a rating downgrade.
Soft Landing?
A crashing demand for loans does not add up to the now widely believed soft landing thesis.
For further discussion, please see China Exports and Imports Collapse, Harbinger of the Global Economy?
More PR deflection. Most of these banks are nowhere near ‘small to medium size’, they are big. The big banks are the problem.
With the snowballing hyper inflationary depression and social collapse crushing the entire economy, what’s a crummy little downgrade or two?
Inflation is not going away any time soon.
These banks will continue to experience deposit flight and dwindling Net Interest Margin. A huge portion of their assets would be underwater if marked to market. And then there are the rising delinquencies on the consumer lending side.
It is my humble opinion that a huge swathe of the regional banking sector will disappear over the course of the next 2-3 years – leading to more consolidation/concentration in and among the big banks, which will face their own moment of reckoning slightly later.
Ultimately the entire US banking system – including the Federal Reserve itself will wind up being nationalized.
“Mr. Hoenig calls the latest events “inevitable” given Dodd-Frank’s regulatory framework. He places much of the blame on the Fed’s use of “risk-weighted capital” to judge a bank’s health. This measure doesn’t account for “duration risk,” which got SVB into trouble.”
” A second-quarter 2022 report from the Kansas City Fed notes that “since year-end 2019, U.S. commercial banks increased securities holdings by $2.0 trillion. . . . The increased holdings were in longer-dated maturities, extending portfolio duration and exposing banks to heightened interest rate risk.” The report notes that rising interest rates have “led to historically high unrealized losses on banks’ available-for-sale (AFS) securities portfolios.”
https://energiesnet.com/another-banking-crisis-was-predictable-mary-anastasia-ogrady-wsj-video/#:~:text=Mr.%20Hoenig%20calls%20the%20latest%20events%20%E2%80%9Cinevitable%E2%80%9D%20given,for%20%E2%80%9Cduration%20risk%2C%E2%80%9D%20which%20got%20SVB%20into%20trouble.
And mortgage rates are headed higher (where residential mortgages represent a large proportion of bank portfolios):
https://fred.stlouisfed.org/series/MORTGAGE30US
What did they rate AIG on 1/1/2008?
There’s been a lot of pretending going on. Bank failures are deflationary. The emperor has no clothes on in a normalized rate world. The tide is going out.
Say good night to “State Street Bank” IMHO, as they have had this coming for quite sometime, and they are not at all positioned well Short OR Midterm, IMO. You be the judge and decide what to do, but be wary, I would strongly suggest IMHO…
Based on the fact demand for business loans has contracted as much as in prior bear markets, a more bearish e-wave count is possible: I-II-1-2. So wave 3 of III would be a horrific crash this fall.
I do not advise shorting banks for a couple reasons. It adds to financial system instability when banks can’t raise cash easily. When the housing bubble burst, shorting bank shares was temporarily banned without warning.
Bankers policy of fog a mirror, buy a house, created financial system instability. Leverage waivers for the Big Five investment banks, created financial system instability. The damage was done beforehand. Bank stocks were going to go down, shorted or not. It was only when FASB was warned by congress to allow bankers to lie about the value of their assets, that the stock market took off to the upside in 2009.
The GSEs played a huge part too. Banks knew they only had to hold the mortgages for a couple of payments before selling them to a GSE.
Agreed. The GSEs should have been put into runoff 14 years ago, to be extinct by this time. Let the lenders eat their own cooking and hold their own loans or pool amongst themselves like insurers – reinsurers.
Yep. Surely this is the 246th sign in the last 3 years on this blog that a recession is coming. Yet here we are. No confirmed recession yet.
Of course a recession is coming. But, just like “the end of the world”, trying to predict it is a waste of time. Yet many here want to hide in their bunkers to prepare for it.
Having said that, a prudent investor will never be 100% cash (or 100% in gold).
But they might sell into strength, which I certainly have been doing; raising some cash for the next correction.
Not a sign of a recession.
It’s a sign that a lot of smaller banks are over exposed and carrying a lot of under water securities (ie long term bonds paying 1-2%) and are at risk of capital flight by depositors chasing yield that would cause them to collapse.
You do realize it can take up to a year after a recession has ended before it’s officially called a recession.
Yep. Which is just another reason to not worry much about it. People here are so worried about a recession that they are afraid to live their lives. They all want to hide in their bunkers, waiting for the end of the world.
What we’re witnessing is the consolidation of regional banks into just a handful of nationwide banks. CBDCs are next.
Don’t worry, they won’t ban cash or get rid of credit unions or community banks right away. That will come later, once they have the digital ID in place.
1) The regional banks cut cost, lend less on higher profit margin over cost.
2) C/C delinquencies are up. Before the recycle bin, the banks turn
delinquencies into zombie loans, paying very low rates rates, for 60 months or 72 months.
3) Consumers might spend less, but Biden/Mussolini/Stalin spend trillions
on blue collar jobs from western PA to OH and the mid west. From Huntsville to Charlotte and Mobil, were PNC, CFG, FITB, USB, TFC… Country music mama.
4) Moody protects itself.
Toot toot!
“The cycle feeds on itself until something breaks.”
That which builds a cycle up, works to tear a cycle down.
The ratings agencies are always way too late to downgrade. I suspect some of those banks are done. Just trying to figure out how they’ll fail instead of if they’ll fail.
I’m surprised Capital One is on the list. I thought them turning their branches into cafe’s would be a huge success. Who doesn’t want to hang out at a bank?
“The ratings agencies are always way too late to downgrade.”
Got to let the horses get out of the corral first, then close the gate.