As one of the main three services handling rating, Moody’s Investors Service officially downgraded Intrust Financial, UMB, Western Alliance, Comerica, First Republic, and Zions Bancorp after officially downgrading Signature Bank.
“We have changed to negative from stable our outlook on the U.S. banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY,” stated the investing service.
Moody’s was heavily critical of First Republic for its “high reliance on more confidence-sensitive uninsured deposit funding” and “low level of capitalization” when compared to its competitors, and also pointed out that the institution kept a large level of people’s deposits that exceeded the insurance limit of the FDIC, making its funding profile “more sensitive to rapid and large withdrawals from deposits.”
“They should be able to count on us after all these many years, to be honest with them and tell them the truth,” explained the Chairman and CEO of Intrust Bank, Charlie Chandler, about the customers of the bank. “And continue to tell them that we’re a very well-capitalized strong bank that is very interested in their well-being and the well-being of their money. We’ve had a few people come in and ask questions. But it’s been a very small number.”
Despite the best efforts from the Federal Reserve to protect banks with liquidity issues and the Treasury Department’s promise that any depositors sporting over the $250,000 limits at SVB and at Signature would not end up losing their funds, Moody’s stated, “Banks with substantial unrealized securities losses and with non-retail and uninsured US depositors may still be more sensitive to depositor competition or ultimate flight, with adverse effects on funding, liquidity, earnings and capital.”
SVB was sandbagged with close to $15 million in unrealized losses because of the Treasury bonds it had purchased that had ended up being devalued by a spike in yields. In order to ensure it meets its obligations, SVB had to entirely divest itself of those sour bonds. CNBC spoke out about SVB as “a favorite of high-flying tech investors that couldn’t get financing at traditional institutions.”
Because of SVB’s failure, experts seem to predict that banks will have to retain more capital rather than invest.
“We expect pressures to persist and be exacerbated by ongoing monetary policy tightening, with interest rates likely to remain higher for longer until inflation returns to within the Fed’s target range,” stated Moody’s. “US banks also now are facing sharply rising deposit costs after years of low funding costs, which will reduce earnings at banks, particularly those with a greater proportion of fixed-rate assets.”
