KeyCorp (KEY) -) shares moved firmly lowerer Tuesday after the bank was added to a list of several U.S. banks that were downgraded by S&P Global as the credit-rating firm warned of a tough climate for domestic lenders.
Following on from a similar move by Moody's Investors Service earlier this month, S&P Global lowered the credit ratings of a host of U.S. banks, including KeyCorp, Comerica Bank (CMA) -), and UMB Financial (UMBF) -).
S&P Global noted increased funding costs linked to higher Federal Reserve interest rates and ongoing deposit outflows.
The ratings company also trimmed credit grades for Associated Banc-Corp (ASB) -) and Valley National Bancorp (VLY) -), citing their reliance on broker deposits.
“The decline in deposits has squeezed liquidity for many banks while the value of their securities -- which make up a large part of their liquidity -- has fallen," S&P Global said. The firm added that many U.S. bank depositors have “shifted their funds into higher-interest-bearing accounts, increasing banks’ funding costs.”
KeyCorp shares were marked 4.1% lower in late Tuesday trading to change hands at $10.44 each. JPMorgan Chase (JPM) -) shares were down 2.3% at $146.10 each while Citigroup (C) -) and Wells Fargo (WFC) -) fell 2.5%.
KBW Regional Bank Index has slumped
The KBW Nasdaq Bank index, a benchmark of U.S. regional lenders, has fallen some 26.8% over the past six months, triggered in part by the collapse of Silicon Valley Bank and the sale of First Republic Bank to JPMorgan in early March. Also a factor: a series of emergency lending facilities the Federal Reserve put in place to steady the balance sheets of weaker lenders.
Earlier this month, Moody's lowered the credit ratings of 10 U.S. banks, while adding a negative outlook to 11 others, citing what it called '"rising funding costs and declining income metrics" that will erode profitability across the sector.
“Asset risk is rising, in particular for small and midsize banks with large [commercial real estate] exposures," Moody's said.
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