Fitch wraps up review of 14 regional banks and issues no further downgrades
By Steve Gelsi and Ciara Linnane
Fitch Ratings takes no further action beyond debt rating cuts in recent weeks on PacWest, Trustmark and Western Alliance.
This story has been updated to reflect that the Fitch debt downgrades on PacWest, Trustmark and Western Alliance took place in April.
Credit rating agency Fitch Ratings on Thursday said it completed a review of the debt of 14 small and mid-sized banks in its coverage and said no further downgrades appear to be needed at the current time.
The review was wrapped up after Fitch downgraded debt of three banks in recent weeks. The downgrades came after a handful of regional banks suffered a flight of deposits and steep drops in stock prices on the heels of the collapse of Silicon Valley Bank in March.
Fitch had previously affirmed the ratings of 11 banks and reduced its ratings only on "a subset of banks that experienced either deposit outflows notably in excess of peers or low tangible capital level," according to a statement
Among the previous downgrades, Fitch had cut PacWest Bancorp (PACW) to a junk rating of BB+ from BBB- on April 14. The rating action was primarily driven by PacWest's "funding and liquidity profile, specifically reliance on non-core funding in the wake of the failure of Silicon Valley Bank," Fitch said. A downgrade to junk may increase PacWest's borrowing costs.
Fitch had also downgraded Western Alliance Bancorp (WAL) to BBB- from BBB+ on April 14, and downgraded the debt of Trustmark Corp. (TRMK) to BBB from BBB+ on May 8. Those ratings are investment grade.
The review was launched after the steep decline in deposits at regional banks in the wake of the collapse of Silicon Valley Bank in March, which triggered a massive deposit flight from other lenders.
Since then, Signature Bank was sold to New York Community Bancorp. (NYCB) and JPMorgan (JPM) acquired First Republic. A fourth bank, Silvergate Bank, liquidated in March with no buyer.
Overall, banks are expected to face greater headwinds from the tightening liquidity environment, although results will differ depending on each bank's geography and business model, Fitch said.
Tighter liquidity in turn is expected to moderate the "robust" 13% median loan growth the U.S. mid-tier banking group experienced in 2022, it added
Fitch also revised downward its outlook on four regional banks, lowering three to negative from stable and one to stable from positive.
The news came a day after Western Alliance triggered powerful gains in beaten-up regional-bank stocks after it said its deposits have grown by $2 billion during the second quarter.
That news eased concerns that continue to weigh on the sector, amid fears the crisis is not yet over.
See now:Regional bank crisis is 'not over,' warns former Fed Vice Chairman Quarles
PacWest stock rose 5% Thursday, but is down 74.6% so far in 2023.
Western Alliance Bancorp rose 1.1% on Thursday, but is down 40.9% in 2023. Trustmark stock fell 0.6% on Thursday and has lost 36.4% this year.
The SPDR S&P Regional Banking ETF (KRE) rose 0.6% on Thursday and has lost 32% in 2023, while the S&P 500 has gained 9.3%.
-Steve Gelsi
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 19, 2023 07:40 ET (11:40 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.