Top US banks at risk of rating downgrade – Fitch
In a dire prediction for the US banking sector, Fitch analyst Chris Wolfe has cautioned that a wave of rating cuts could be on the horizon, impacting prominent financial institutions such as JPMorgan Chase and Bank of America. The sector’s declining health, characterized by a range of factors including regulatory vulnerabilities and uncertainty surrounding interest rates, has prompted Fitch to issue this ominous warning.
Wolfe disclosed to CNBC on Tuesday that Fitch had previously downgraded its evaluation of the industry’s “operating environment” in June. The decision was influenced by mounting pressure on the nation’s credit rating, regulatory shortcomings exposed by the failures of regional banks, and the lingering haze of ambiguity surrounding interest rates. Remarkably, this downgrade went relatively unnoticed at the time, as it did not directly translate into downgraded ratings for individual banks.
However, the stakes have risen significantly now, as Wolfe highlighted that an additional one-notch downgrade of the industry’s score, shifting from AA- to A+, would necessitate a comprehensive reassessment of the ratings of more than 70 US banks covered by Fitch. Such an adjustment, if implemented, could cascade into a series of negative rating actions, potentially impacting banks’ creditworthiness and overall stability.
Explaining this correlation, Wolfe emphasized, “Banks cannot be rated higher than the environment in which they operate.” Consequently, the potential for a further downgrade would prompt Fitch to recalibrate its financial metrics, influencing its evaluation of individual banks.
The timing and potential repercussions of such a downgrade remain uncertain. Wolfe refrained from offering specific details, noting, “We’d have some decisions to make, both on an absolute and relative basis.” This ambiguity has left industry experts and financial stakeholders on edge, as they await Fitch’s next move.
The warning issued by Wolfe closely follows recent actions taken by other credit rating agencies. Just last week, Moody’s, another prominent agency, slashed the ratings of ten small and mid-sized US banks and issued alerts about potential downgrades for seventeen more lenders, including larger financial institutions. Furthermore, earlier this month, Fitch itself downgraded the long-term credit rating of the United States, citing concerns about political dysfunction and mounting levels of national debt.
The convergence of these indicators has cast a shadow of uncertainty over the US banking sector, with experts speculating about the potential for a seismic shift in its landscape. As the industry navigates through these uncharted waters, financial institutions and stakeholders alike brace themselves for potential rating adjustments that could reshape the dynamics of the US banking landscape.
