Moody’s warns US banks of more pain as sector downgrade

By Natalie Sherman, Dearbail Jordan, Faarea Masud

Ratings giant Moody’s warned of further damage to the U.S. banking system. The collapse of Silicon Valley Bank.

Moody’s downgraded its outlook for the sector to ‘negative’ from stable and warned of a ‘rapidly deteriorating business environment’.

The downgrade came as U.S. and European bank stocks rebounded following earlier declines.

However, Moody’s said several other banks face the risk of customer withdrawals.

Rising interest rates are also a challenge, he said, which could result in losses for banks that bought assets such as government bonds when interest rates were low.

“Banks with high unrealized losses on securities, retail outlets and uninsured U.S. depositors may remain sensitive to depositor competition and eventual flight,” Moody’s said in a report. has potential,” he said.

“We expect continued monetary policy tightening to sustain and exacerbate pressure as interest rates are likely to stick around longer until inflation returns to within the Fed’s target band.”

After the shocking collapse of Silicon Valley Bank (SVB), the 16th largest in the United States, authorities acted quickly to contain the effects.

The major lender to tech companies needed to raise money last week after a flood of customer withdrawals and was forced to sell a portfolio of assets, mostly government bonds, at a loss, the bank said. went bankrupt after it caught fire.

U.S. regulators said they bought the bank and guaranteed deposits above the $250,000 that the government normally guarantees.

Officials from the Justice Department and the Securities and Exchange Commission are now investigating the collapse, according to US media.

Reports suggest that some customers of smaller U.S. banks are looking to put money into larger institutions.

But rating agency S&P Global said it saw no evidence of a crackdown outside of failed banks.

The emergency measures introduced by the Federal Reserve should reduce the risk of bank customers losing confidence, he said.

However, it added that “the situation remains fluid” and that “some banks are showing greater signs of stress than others”, including First Republic Bank.

Analysts expect turmoil in the financial system caused by the Fed’s failure to guide it to slow or pause rate hikes at next week’s meeting.

That view gained momentum on Tuesday, helping to boost stocks after the latest inflation report showed US prices up 6% in the 12 months to February, in line with expectations.

San Francisco-based First Republic Bank, whose shares fell 62% on Monday, surged more than 50% after trading opened on Tuesday. It eventually closed around 30% higher.

Three major stock indices also rose, with the Dow up 1%, the S&P 500 up 1.7% and the Nasdaq up more than 2% throughout the day.

In the UK, bank stocks that plunged Monday were all up by Tuesday afternoon. The FTSE 100 ended up up about 1.2%.

The European Stox Bank Index also opened lower on Tuesday but then recovered to close close to 3% higher.

However, shares of HSBC, which saved SVB’s UK business by £1, fell 1%, while shares of major lenders such as MUFG, Japan’s largest bank, fell more than 8%.

An index of Japanese bank stocks, known as the Topix Banks Index, plunged 7.4% despite reassurance from the Bank of Japan (BoJ).

“Japanese financial institutions have little direct exposure to Silicon Valley banks, so the impact will be limited,” said a BOJ official.

-BBC