Moody's Cuts Ratings of 10 Banks - Analyst Blog

Moody's Investors Service, the ratings arm of Moody's Corp. (MCO), has lowered the ratings of 10 banks earlier this week on lower expectations for governmental support for these banks.

Banks Thumbed Down

The banks whose ratings were downgraded are BB&T Corp. (BBT), Capital One Financial Corp. (COF), Fifth Third Bancorp (FITB), KeyCorp (KEY), PNC Financial Services Group Inc. (PNC), Popular Inc. (BPOP), Regions Financial Corp. (RF), SunTrust Banks Inc. (STI), U.S. Bancorp (USB) and Zions Bancorp (ZION). Additionally, the rating agency lowered the outlook on the subsidiaries of American Express Company (AXP). While the overall ratings – and the downgrades – varied, the deposit ratings of all the regional banks experienced a minimum of one notch of cut.

With the severe financial crisis behind us, Moody's believes that the passage of the financial regulatory overhaul law this year indicates that individual banks would no longer get unlimited support. This is in contrast to the situation during the financial crisis when banks were provided funds in case they failed to generate enough cash for satisfying the government's level of requirements. Also, the rating agency thinks that a failure of any of these regional banks would not result in a systemic crisis. As such, the ratings of these banks have undergone a downgrade.

Moody's has also noted that a number of these banks are yet to pay back the bailout money. These banks include Fifth Third, KeyCorp, Popular, Regions, SunTrust, and Zions. However, these banks are chalking out various options to repay the borrowed funds at the earliest.

The Overall Scenario

While the banking industry is still struggling with liquidity and confidence challenges, it is now comparatively stable with financial support from the U.S. government. Though the banking system is not yet out of the woods as there are persistent problems that need to be addressed by the government before shifting the strategy to growth, a lot has improved from bailout program post the economic meltdown.  

In an effort to reduce many of the practices that led the U.S. economy to its worst state since the 1930s, President Obama signed a law to overhaul the banking system and Wall Street in July this year.

Although the law – the most sweeping financial reform since the Great Depression -- gives the government more power to tighten regulations for companies that threaten the economy and ultimately result in lower bank failures, a number of provisions may restrict the profitability for the country's biggest banks in the near-to mid-term. We keep our fingers crossed at this moment.
 

 
AMER EXPRESS CO (AXP): Free Stock Analysis Report
 
BB&T CORP (BBT): Free Stock Analysis Report
 
POPULAR INC (BPOP): Free Stock Analysis Report
 
CAPITAL ONE FIN (COF): Free Stock Analysis Report
 
FIFTH THIRD BK (FITB): Free Stock Analysis Report
 
KEYCORP NEW (KEY): Free Stock Analysis Report
 
MOODYS CORP (MCO): Free Stock Analysis Report
 
PNC FINL SVC CP (PNC): Free Stock Analysis Report
 
REGIONS FINL CP (RF): Free Stock Analysis Report
 
SUNTRUST BKS (STI): Free Stock Analysis Report
 
US BANCORP (USB): Free Stock Analysis Report
 
ZIONS BANCORP (ZION): Free Stock Analysis Report
 
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