S&P Global lowers U.S. bank ratings, citing 'tough' climate for lenders

KeyCorp  (KEY) - Get Free Report shares edged lower in pre-market trading after its was added to a list of several U.S. banks that were downgraded by S&P Global late Monday as it warned of a 'tough' climate for domestic lenders.

Following on from a similar move by Moody's Investors Service earlier this month, S&P Global lowered the credit ratings of a host of U.S. banks, including KeyCorp, Comerica Bank  (CMA) - Get Free Report, and UMB Financial  (UMBF) - Get Free Report, noting increased funding costs linked to higher Federal Reserve interest rates and ongoing deposit outflows.

The ratings company also trimmed credit grades for Associated Banc-Corp  (ASB) - Get Free Report and Valley National Bancorp  (VLY) - Get Free Report, citing their reliance on broker deposits. 

“The decline in deposits has squeezed liquidity for many banks while the value of their securities  -- which make up a large part of their liquidity -- has fallen," S&P Global said, adding that many U.S. bank depositors have “shifted their funds into higher-interest-bearing accounts, increasing banks’ funding costs”. 

KeyCorp shares were marked 0.4% lower in pre-market trading to indicate an opening bell price of $10.8 each. 

The KBW Nasdaq Bank index, a benchmark of U.S. regional lenders, has fallen some 24.8% over the past six month, triggered in part by the collapse of Silicon Valley Bank and the sale of First Republic Bank to JPMorgan JPM in early March and a series of emergency lending facilities put in place by the Federal Reserve to steady the balance sheets of weaker lenders.

Earlier this month, Moody's lowered the credit ratings of 10 U.S. banks, while adding a negative outlook to 11 others, citing what it called '"rising funding costs and declining income metrics" that will erode profitability across the sector. 

“Asset risk is rising, in particular for small and midsize banks with large CRE exposures," Moody's said.

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