Investing.com - Several leading American banks such as Capital One Financial Corporation (NYSE:COF), PNC Financial Services Group Inc (NYSE:PNC), and Fifth Third Bancorp (NASDAQ:FITB) have seen their debt-rating outlooks slashed by Moodys' (NYSE:MCO) Investors Service. This move comes in response to the rising pressures within the US banking sector (NYSE:KRE).
These stress points encompass a variety of issues including funding challenges, weaknesses in regulatory capital and escalating risks linked with commercial real estate exposures. These insights were gathered from the ratings provider.
In what can be seen as an alarming trend, second quarter earnings of US banks depicted significant surges in funding costs along with profitability strains due to rapid and extensive tightening of monetary policy coupled with an inverted Treasury curve. As per Moody’s interpretation; these factors will persistently undermine profitability while hinting at a diminished capacity for internal capital generation.
Some financial institutions have opted to limit loan growth as a means to conserve capital assets. However, this move also decelerates the transition towards higher-yielding assets in their loan mix - another point noted by Moody’s.
Banks that rely heavily on concentrated or elevated levels of uninsured deposits are particularly vulnerable under these conditions - more so those having large volumes of fixed-rate securities and loans.
The downslide doesn’t end here as Moody’s has further reduced outlooks for Huntington Bancshares Incorporated (NASDAQ:HBAN), Citizens Financial Group Inc (NYSE:CFG), Regions Financial Corporation (NYSE:RF), Ally Financial Inc (NYSE:ALLY) and Bank Ozk (NASDAQ:OZK). Meanwhile it has put forth ratings for Bank of New York Mellon (NYSE:BK), U.S. Bancorp (NYSE:USB), State Street Corp (NYSE:STT) and Truist Financial Corp (NYSE:TFC) under review for potential downgrade.