Moody's Downgrades Bank Ratings, Stocks Slump

Moody's Investors Service has placed several major U.S. banks on review for downgrade and has already lowered the ratings on the debt of several midsize and smaller lenders. This move has led to a decline in bank stocks.

The ratings firm cited potential problems similar to those that caused the collapse of Silicon Valley Bank and Signature Bank in March this year. These problems include higher interest rates, falling asset prices, and a weakening commercial real estate market.

Moody's highlighted that earnings from many banks in the second quarter showed growing profitability pressures, which will reduce their ability to generate internal capital. They also warned that a mild recession could be on the horizon and that asset quality is likely to decline.

This announcement comes shortly after rival ratings firm Fitch downgraded U.S. government debt last week.

Moody's has placed bonds from six large U.S. banks on review for downgrade, including U.S. Bancorp, State Street, Bank of New York Mellon, Northern Trust, Cullen/Frost Bankers, and Truist Financial. As a result, U.S. Bancorp fell 2.2%, State Street was down 1.2%, and Truist shares declined 1.6% in premarket trading on Tuesday.

In addition to the major banks, Moody's also downgraded the ratings of Commerce Bancshares and BOK Financial.

The downgrade has had a ripple effect across the banking sector, with the SPDR S&P Bank ETF down 1.8% and the SPDR S&P Regional Banking ETF down 2.6%. Even big banks like JPMorgan Chase and Bank of America saw declines, with JPMorgan Chase down 1.5% and Bank of America down 1.9%.