S&P Revises Regional Bank Ratings - Analyst Blog
December 07 2011 - 5:45AM
Zacks
In yet another round of credit ratings revision, Standard &
Poor's (S&P) announced changes in credit ratings for 31
regional banks. The list includes 28 publicly traded parent company
banks, a non-public entity Bank of North Dakota and a couple of
North American units of European banks.
Some of the banks whose ratings were lowered by S&P
included– BB&T Corporation (BBT),
Commerce Bancshares Inc. (CBSH), PNC
Financial Services Group (PNC),
U.S.Bancorp. (USB) and
Northern Trust Corporation (NTRS). Ratings for
these banks were downgraded by one notch.
However, S&P did not change the ratings of some banks
including –First Horizon National Corporation
(FHN), First Niagara Financial Group Inc. (FNFG),
Huntington Bancshares Inc. (HBAN),
KeyCorp (KEY), M&T Bank Corp.
(MTB), People's United Financial Inc. (PBCT),
Regions Financial Corp. (RF), SunTrust
Banks Inc. (STI), Synovus Financial Corp.
(SNV) and Zions Bancorp. (ZION). However, only
three banks – Associated Banc-Corp (ASBC),
Cullen/Frost Bankers Inc. (CFR) and First
Republic Bank (FRC) – received upgraded ratings.
Last month, S&P had reviewed the credit ratings of 37 banks.
Out of those, it lowered its ratings for 15 banks including many
Wall Street giants and a few European banks. 20 of the reviewed
banks retained their ratings while two were awarded upgraded
ratings.
Reasons for Changes
Though one may think that these ratings revisions are an outcome
of weak economic environment and financial institutions’ inability
to withstand it, this is not the case.
Actually, the latest alterations in the credit ratings by
S&P are mainly based on the criteria modifications that the
rating agency has been planning, since the financial crisis in
2008. S&P suffered a bad reputation as it had placed higher
ratings on various securities that were backed by subprime
mortgages, which did not reflect accurate risk of investments.
Also, it is believed that S&P’s faulty ratings primarily led
to the fall of Lehman Brothers Holdings Inc. and Bear Stearns Cos.
Hence, in December 2008, S&P started reviewing its rating
methodology. Additionally, earlier this year, the rating agency
published its proposed criteria and requested feedback from issuers
and investors. S&P also announced that it would start
publishing revised ratings from the fourth quarter of 2011.
Revised Criterions
S&P’s new methodology to evaluate financial institutions is
based on industry and economic risks, company specific strengths
and weaknesses, and possibility of government bailout in case of
another financial crisis. The ratings would reflect the health of
the banking sector in the country where it operates. It will also
consider the strength of financial institutions in emerging
economies compared with Europe and the U.S.
The new criteria will facilitate comparisons between banks
across the globe by applying consistent measurements of companies’
capital stability.
The Consequences
With most of the financial institutions reeling under European
debt crisis and sluggish economic recovery, the ratings downgrade
for these banks could increase the already high funding costs.
Additionally, it is expected to result in liquidity crisis. Many of
the banks might have to increase the collateral and termination
payments on trades and some may even end up with losses in the
quarterly results.
However, it might not be as bad as we think. In fact, the
ratings revisions and changed methodology will present a clear
picture of the banking industry to the investors. Also, this new
criteria will give S&P a better understanding of the various
scenarios faced by the banks.
Additionally, this might help the financial institutions to
prepare for another financial crisis. Most importantly, these could
ultimately result in less involvement of taxpayers’ money in
bailout of troubled financial institutions.
BB&T CORP (BBT): Free Stock Analysis Report
COMMERCE BANCSH (CBSH): Free Stock Analysis Report
FIRST HRZN NATL (FHN): Free Stock Analysis Report
FIRST NIAGARA (FNFG): Free Stock Analysis Report
HUNTINGTON BANC (HBAN): Free Stock Analysis Report
KEYCORP NEW (KEY): Free Stock Analysis Report
M&T BANK CORP (MTB): Free Stock Analysis Report
NORTHERN TRUST (NTRS): Free Stock Analysis Report
PEOPLES UTD FIN (PBCT): Free Stock Analysis Report
PNC FINL SVC CP (PNC): Free Stock Analysis Report
REGIONS FINL CP (RF): Free Stock Analysis Report
SYNOVUS FINL CP (SNV): Free Stock Analysis Report
SUNTRUST BKS (STI): Free Stock Analysis Report
US BANCORP (USB): Free Stock Analysis Report
ZIONS BANCORP (ZION): Free Stock Analysis Report
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