Are US Banks On Shaky Ground? Stocks Tumble As Fitch Sounds Alarm On Potential Downgrades

Fitch Ratings raised alarms about the looming threat of rating reductions for numerous U.S. banks, with even giants such as JPMorgan Chase & Co. JPM potentially in the crosshairs.

Chris Wolfe, an analyst at Fitch, highlighted that while the agency lowered its outlook on the banking sector’s health in June, it didn’t result in immediate downgrades. However, a further dip in the industry’s rating from AA- to A+ could prompt Fitch to reassess the ratings of over 70 U.S. banks.

Wolfe, in a conversation with CNBC, stated, “A shift to A+ would necessitate a reevaluation of our financial metrics, likely leading to adverse rating actions.”

And recent moves by credit rating agencies have stirred the financial markets.

Just last week, Moody's slashed ratings for 10 mid-tier banks and hinted at potential cuts for 17 more, including major players like Truist and U.S. Bank. Earlier, Fitch reduced the U.S. long-term credit rating, drawing criticism from industry stalwarts like JPMorgan CEO Jamie Dimon.

Read Now: U.S. Banking Sector Shaken: Moody’s Drops Credit Ratings Of 10 Banks, Sounds Alarm For More Downgrades

Wolfe emphasized Fitch wants to alert the market about the tangible risk of bank downgrades. The June downgrade was influenced by factors such as the nation’s credit rating pressure, regulatory shortcomings revealed by regional bank collapses in March and interest rate ambiguities.

A potential issue with the A+ downgrade is that it would position the industry’s rating below some of its premier banks. For instance, top banks such as JPMorgan and Bank of America Corp. BAC could see their ratings drop from AA- to A+.

Given that banks cannot surpass the rating of their operating environment, this could lead to a domino effect, compelling Fitch to mull over downgrades for other banks in the sector.

Market Reactions: Bank Stocks Sold Off On Tuesday

Following these revelations, shares of JPMorgan dipped by 2.8%, and Bank of America declined by 3.4%, with the latter on track for the worst trading day since mid-March.

Additionally, asset manager giant Blackrock Inc. BLK saw a 3% drop, marking one of its most significant downturns this year.

ETFs were not spared either, with the Invesco KBW Bank ETF KBWB and the Financial Select Sector SPDR Fund XLF falling by 2.9% and 1.9%, respectively.

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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