S&P Global downgrades outlooks on five regional US banks to ‘Negative’

Regional US banks ratings: Credit rating agency S&P Global downgraded five regional US banks on Tuesday in response to their commercial real estate (CRE) exposures, potentially reigniting investor concerns regarding the sector's health.

First Commonwealth Financial, M&T Bank, Synovus Financial, Trustmark, and Valley National Bancorp were downgraded from "stable" to "negative," according to the agency.

"The negative outlook revisions reflect the possibility that stress in CRE markets may hurt the asset quality and performance of the five banks, which have some of the highest exposures to CRE loans among banks we rate," S&P stated.

Investor apprehensions regarding regional banks' CRE exposure heightened this year after New York Community Bancorp reported a surprise quarterly loss due to provisions on troubled CRE loans, sparking a sell-off in US regional banking shares. The bank has initiated asset sales to bolster its balance sheet.

Concerns persist among investors and analysts that increased borrowing costs and lingering low occupancy rates for office spaces post-COVID-19 pandemic could lead to more lenders facing losses as borrowers default on loans.

These downgrades come on the heels of the collapse of Silicon Valley Bank and Signature Bank last year, further sensitising investors to the health of US regional banks.

Apart from CRE exposure, the sector grapples with challenges stemming from the escalating costs of retaining deposits amid high interest rates.

As of Tuesday, S&P has assigned negative outlooks to nine US banks, representing 18 per cent of those it rates. The majority of these ratings "relate, at least in part, to sizable CRE exposures." The company rates banks of varying sizes.

(With Reuters inputs.)