S&P Global downgrades five US banks’ outlooks to ‘negative’ for CRE exposures
Tuesday’s downgrades come a year after the collapse of Silicon Valley Bank and Signature Bank, which increased investor sensitivity to the health of U.S. regional banks.
Credit rating agency S&P Global on Tuesday cut its outlook on five regional US banks due to their exposure to commercial real estate (CRE), in a move likely to revive investor concerns about the health of the sector.
The rating agency lowered the outlook for First Commonwealth Financial, M&T Bank, Synovus Financial, Trustmark and Valley National Bancorp from “negative” to “stable,” the rating agency said.
“The negative outlook revisions reflect the possibility that stress in CRE markets could harm the asset quality and performance of the five banks, which have among the highest exposures to CRE loans among the banks we rate” , S&P said.
Representatives for the banks did not immediately respond to requests for comment outside business hours.
Investor concerns about regional banks’ CRE exposure increased this year after New York Community Bancorp reported a surprise quarterly loss citing provisions for soured CRE loans, triggering a sell-off in shares in U.S. regional banks. The bank has sold assets to strengthen its balance sheet.
Investors and analysts are concerned that higher borrowing costs and persistently low office occupancy rates in the wake of the Covid-19 pandemic could lead to more lenders incurring losses as borrowers default on their loans.
Tuesday’s downgrades come a year after the collapse of Silicon Valley Bank and Signature Bank, which increased investor sensitivity to the health of U.S. regional banks.
In addition to exposure to CREs, the sector is also facing challenges due to rising costs of holding deposits in the backdrop of high interest rates.
As of Tuesday, S&P had negative outlooks on nine U.S. banks, or 18% of the banks it rates, the report said. Most of these ratings are “at least partially related to significant CRE risks.” The company rates a range of banks of different sizes.
First print: March 27, 2024 | 9:49 pm IST