Rating agency Moody’s has currently put six banks on downgrade watch, citing reliance on uninsured deposits as trust-sensitive and significant losses on asset portfolios.
But where was the rating agency last week and in the weeks before the biggest US banking failures since the 2008-09 financial crisis?
Silvergate Bank, Silicon Valley Bank, and Signature Bank have collapsed within the past week – the latter two have been shut down by federal regulators – starting with losses on assets and ending with shattered confidence in depositors and bank runs. Happened.
It’s been an unremarkable time for investors
Dow Jones Industrial Average
sliding down and
KBW Nasdaq Bank Index
It lost about a quarter of its value in just a few days.
Moody’s is taking rating action, moving Signature Bank’s subordinated debt deeper into junk bond territory with a C rating and ultimately deciding to pull ratings from the failed lender.
but the banks that are still alive, including
First Republic Bank
(ticker: FRC) and five other lenders are also being watched and monitored by Moody’s for a downgrade.
The ratings agency on Monday placed all of First Republic’s long-term ratings and assessments on review for downgrades — high reliance on confidence-sensitive uninsured deposit funding, high levels of unrealized losses in its portfolio of securities, and low capitalization relative to Referring to the level. to peers.
Moody’s analysts said, “If it faces higher-anticipated deposit outflows and the liquidity backstop proves insufficient, the bank may need to sell assets, thus meeting unrealized losses.” The agency noted that some of the group’s weaknesses in funding and liquid assets have been offset to some extent by additional official sector lending capacity and the bank’s strong franchise in private banking and wealth management.
It’s a similar picture across peer banks, rating agency INTRUST Financial is also putting up,
(CMA) on review for downgrade.
Shares of five listed banks placed on review for downgrade were the hottest in Tuesday’s premarket trading after heavy losses on Monday, with First Republic up 20%,
Up 7%, Zions up 11%, Western Alliance rally 20% and Comerica jumps 10%. Five bank stocks lost an average of more than 35% on Monday.
Moody’s action is certainly a welcome glimpse from one of Wall Street’s most respected ratings agencies. But it appears to be too late – for investors, regulators and banks that are still above water, to say nothing of those that collapsed and their employees. To downgrade Signature’s debt and retract it a few days after the rating was taken down only underscores the point.
This only points to the larger question arising from these collapses, which is whether what played out – undoubtedly a failure of risk management by banks – was also a failure of supervision by regulators and ignorance from rating agencies.
Investors need look no further than the past decade to remember regulators and ratings agencies that fell asleep at the wheel barreling into the 2008-2009 financial crisis.
The Federal Reserve is conducting an internal review of its supervision of the Silicon Valley bank. But will the forces that caused its collapse be a problem for other banks, and will the ratings agencies be ahead of the curve this time?
Baron’s Moody’s has been reached for comment.
Write to Jack Denton at [email protected]