Moody’s puts six US banks on watch for potential downgrade

CNN: Moody’s Investors Service placed six US banks on review for potential credit rating downgrades late Monday, in the wake of last week’s collapse of Silicon Valley Bank.
The credit ratings firm also downgraded Signature Bank deep into junk territory following that bank’s failure. Ratings downgrades can make it more expensive for companies to borrow money.

Moody’s warned it could similarly downgrade First Republic Bank, Zions, Western Alliance, Comerica, UMB Financial and Intrust Financial. The firm cited the “extremely volatile funding conditions for some US banks exposed to the risk of uninsured deposit outflows.”

The move comes after shares of regional banks got clobbered on Monday even after the US federal government stepped in with a massive intervention designed to protect depositors and prevent further bank runs. Regional bank shares rebounded in premarket trading yesterday.

For San Francisco-based First Republic, Moody’s pointed to the bank’s “high reliance on more confidence-sensitive uninsured deposit funding,” high unrealised losses in its bond holdings and a “low level of capitalisation” relative to its peers. 

First Republic 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.” 

After plunging 62 percent on Monday, First Republic shares climbed 24 percent in premarket trading yesterday.