Bloomberg reported, after Moody’s Investors Service downgraded 10 small and midsize lenders and warned that it may do the same to major companies like U.S. Bancorp, Bank of New York Mellon Corp., State Street Corp., and Truist Financial Corp., US bank stocks fell.
Additionally, Moody’s revised its outlook on eleven banks, including Capital One, Citizens Financial, and Fifth Third Bancorp, to negative.
Moody’s reported, “We expect banks’ ALM risks to be exacerbated by the significant increase in the Federal Reserve’s policy rate as well as the ongoing reduction in banking system reserves at the Fed and, relatedly, deposits because of ongoing QT,” Moody’s said in the report. “Interest rates are likely to remain higher for longer until inflation returns to within the Fed’s target range and as noted earlier, longer-term U.S. interest rates also are moving higher because of multiple factors, which will put further pressure on banks’ fixed-rate assets.” “Risks may be more pronounced if the U.S. enters a recession – which we expect will happen in early 2024 – because asset quality will worsen and increase the potential for capital erosion.”
In addition, Moody’s reported, “We continue to expect a mild recession in early 2024, and given the funding strains on the U.S. banking sector, there will likely be a tightening of credit conditions and rising loan losses for U.S. banks”
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