S&P Global cuts outlook for five U.S. regional banks to ‘negative’

(Reuters) – Ratings agency S&P Global on Tuesday downgraded five U.S. regional banks to notch 1 due to their commercial real estate (CRE) exposure, a move that could reignite investor concerns about the health of the sector worries.

The ratings agency said it downgraded First Federal Financial Corp., M&T Bank, Synovus Financial, Trustmark and Valley National Bancorp to “negative” from “stable.”

“The negative outlook revision reflects the potential for commercial real estate market stress to harm the asset quality and performance of five banks that have among the highest exposures to commercial real estate lending among our rated banks,” S&P said.

Bank representatives did not immediately respond to a request for comment outside business hours.

Investors’ concerns about regional banks’ CRE exposure have intensified this year after New York Community Bancorp announced an unexpected quarterly loss, citing bad CRE loan rules, triggering a sell-off in U.S. regional bank stocks. The bank has sold assets to shore up its balances. sheet.

Investors and analysts have been concerned that rising borrowing costs and persistently low office space occupancy rates in the wake of the COVID-19 pandemic could lead to more lenders losing money as borrowers default on their loans.

Tuesday’s downgrades come a year after the collapse of Silicon Valley Bank and Signature Bank, where shareholder density raised concerns about the health of regional U.S. banks.

In addition to commercial real estate risks, the industry also faces the challenge of rising deposit retention costs in the context of high interest rates.

As of Tuesday, S&P had negative outlooks on nine U.S. banks, accounting for 18% of the banks it rated, adding that most of the ratings were “at least partially related to large commercial real estate exposures.” Sizes vary.

(Reporting by Mehnaz Yasmin in Bengaluru; Editing by Devika Syamnath, Krishna Chandra Eluri, Michelle Price and Jamie Freed)

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