Moody's downgrades 10 US banks, citing profitability pressures

Ratings agency Moody's downgraded the credit ratings of 10 US banks on Monday and warned of possible cuts to more lenders.

Moody's cut the ratings of those banks by one notch, and also placed some other banks on review for potential downgrades.

The downgraded banks include M&T Bank, Pinnacle Financial Partners, Prosperity Bank and BOK Financial Corp.

In addition, Moody's placed six major lenders, including Bank of New York Mellon, US Bancorp, State Street and Truist Financial on review for potential downgrades.

"US banks continue to contend with interest rate and asset-liability management risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets," the ratings agency wrote in a note.

"Meanwhile, many banks' Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital," it added.

Moody's also changed its outlook to negative for 11 US major lenders, including Capital One, Citizens Financial and Fifth Third Bancorp.

Moody's announcement came after the ratings firm Fitch downgraded US government debt rating last week.

Regional banks are at a greater risk since they have comparatively low regulatory capital, Moody's warned, adding that institutions with a higher share of fixed-rate assets on the balance sheet are more constrained in terms of profitability and ability to grow capital and continue lending.

"Risks may be more pronounced if the US enters a recession — which we expect will happen in early 2024 — because asset quality will worsen and increase the potential for capital erosion," the ratings agency said.