The cost of the merger has been a headwind on profits for the moment, he said. Bancorp’s balance sheet still reflects its $8 billion acquisition of Union Bank, which closed late last year. Bancorp’s score of negative 98% reflects unrealized available-for-sale and held-to-maturity losses and more than 15% residential mortgages as a percentage of tangible capital equity, as of March 31. Had the worst score of negative 98% in a measure of interest rate risk, funding and asset-liability management, weaker capital and exposure to commercial real estate. Moved more deeply into the red than other bank stocks.Īmong the group of 27 banks covered in Moody’s review, U.S. “Historically speaking a 5% interest rate is not a hard stop for business to get done,” Mulberry said. When Wall Street sees gets more visibility on whether interest rates will level off or drop, deal-making and bank profit margins may start to improve, he said. Federal Reserve may end.īut for now, it seems like interest rates will stay higher for longer, he said. Bancorp debt have widened only slightly on the heels of Moody’s debt downgrade as bond investors show a more muted reaction.įor his part, Mulberry has been keeping an eye on retail sales and tightness in the labor market as indicators of when interest rate hikes by the U.S. Spreads on M&T Bank, State Street and U.S. Reaction to the downgrade has been more muted in the corporate bond market, where spreads have widened only slightly between the prices being asked by sellers and the prices offered by buyers for three of the more prominent names in the Moody’s action: State Street Corp., U.S. “Today’s move seems to be more of an emotional overreaction, but it’s no surprise given the pressure on net interest income by banks,” Mulberry said. sovereign debt downgrade by Fitch, because investors seemed to look past the negative development on the heels of positive employment data. Mulberry said bank stocks had a muted reaction to last week’s U.S. Rather it’s a signal that net interest income will continue to be under pressure as banks pay more to hold deposits, while interest payments they get from loans fail to keep up. “Meanwhile, many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital.”Īlso read: JPMorgan, Goldman and Morgan Stanley win praise in Jefferies Q2 bank earnings wrapīrian Mulberry, client portfolio manager at Zacks Investment Management, said the Moody’s downgrade doesn’t mean that banks face any of the solvency issues that caused the demise of three regional banks earlier this year. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody’s analyst Jill Cetina said. A one-notch downgrade on debt could mean an extra 0.1% in the cost of borrowing for the largest banks and up to 1% more for smaller banks depending on balance-sheet holdings of each bank, according to industry estimates. recession in 2024 and higher interest rates on the quality of corporate debt. Moody’s cited the impact of a potential U.S.
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