US bank stocks drop as Moody's downgrade sours sentiment
The rating agency said rising funding costs, a possible decline in deposit levels and weaker profitability pose risks to the banking sector, which went through a crisis earlier this year after the collapse of three lenders. Moody's also warned it may cut ratings of some of the biggest U.S. lenders, and placed six of them under review for a potential downgrade.
Of those, shares of Bank of New York Mellon and U.S. Bancorp fell more than 2%, while Truist Financial and State Street dropped over 1%. «The Moody's announcement is a wake-up call,» Stuart Cole, chief macro economist at Equiti Capital, said.
«It is significant for U.S. growth too, as U.S. regional banks are the financing lifeblood for small and mid-size enterprises.» Shares of Bank of America, Citigroup and JPMorgan Chase fell more than 1%.
Their ratings were not part of Moody's latest changes. Deposits, which have been a pressure point for banks since Silicon Valley Bank failed earlier this year, will also continue to decline as high rates prompt customers to look for alternatives that provide higher yields. «Although the general drain on deposit funding caused by quantitative tightening (QT) moderated in Q2, there remains a significant risk that systemwide deposits will resume their decline in coming quarters,» Moody's wrote in its note dated Monday.
Still, some analysts remained positive about the sector. «The overnight news doesn't really dent our view on U.S. banks because we have been favoring quality and liquidity as a whole, our view on the broader sector still remains constructive,» said Georgios Leontaris, chief investment officer for Switzerland and EMEA at HSBC Global Private Banking and Wealth
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