Moody’s Investors Service placed six US banks on review for potential credit rating downgrades late Monday.
Moody’s, which rated Signature Bank’s subordinate debt ‘C’, said it was also withdrawing future ratings for the collapsed bank, according to the Economic Times. Rating downgrades can make it more expensive for companies to borrow money.
State regulators closed Signature Bank on Sunday, the third largest failure in U.S. banking history, two days after authorities shuttered Silicon Valley Bank in a collapse that stranded billions in deposits.
Moody’s warned it could similarly downgrade First Republic Bank (FRC), Zions (ZION), Western Alliance (WAL), Comerica (CMA), UMB Financial (UMBF), and Intrust Financial. The firm cited the “extremely volatile funding conditions for some US banks exposed to the risk of uninsured deposit outflows.”
Regional bank shares were clobbered on Monday, reports CNN Business News, even after the US federal government stepped in with a massive intervention designed to protect depositors and prevent further bank runs.
However, regional bank shares rebounded in premarket trading on Tuesday.
For San Francisco-based First Republic, Moody’s pointed to the bank’s “high reliance on more confidence-sensitive uninsured deposit funding,” high unrealized losses in its bond holdings, and a “low level of capitalization” relative to its peers.
First Republic shares rose sharply after falling more than 60% on Monday. The bank has a high amount of deposits above the FDIC’s insurance limit, Moody’s said, noting this makes the bank’s funding profile “more sensitive to rapid and large withdrawals from deposits.”
Zions Bancorporation in Utah, which has more than 100 branches in three states, is now among the banks being pummeled by anxious investors. Its shares sank about 25 percent on Monday.
Western Alliance and Comerica both took hits on Monday, according to the Detroit Free Press, with Comerica closing at $42.54 a share, down 27.67% or $16.27 a share. Western Alliance shares rose 33 percent on Tuesday.
