Top US banks at risk of rating downgrade – Fitch

The US banking sector could be hit with a spate of rating cuts including for the likes of JPMorgan Chase and Bank of America due to the industry’s deteriorating health, Fitch analyst Chris Wolfe told CNBC on Tuesday. 

According to Wolfe, Fitch cut its assessment of the industry’s “operating environment” back in June amid pressure on the country’s credit rating, regulatory gaps exposed by regional bank failures, and uncertainty around interest rates.

That move went largely unnoticed, Wolfe claims, because it did not lead to downgrades on banks. However, another one-notch downgrade of the industry’s score, from AA- to A+, would force Fitch to reevaluate ratings on each of the more than 70 US banks it covers.

“If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions,” he stated, adding that banks cannot be rated higher than the environment in which they operate.

Wolfe did not give any details, including on the timing of a potential downgrade or its impact on lower-rated firms, saying: “We’d have some decisions to make, both on an absolute and relative basis.” 

The warning comes after Moody’s last week slashed the ratings for 10 small and midsized US banks, and warned of potential downgrades for another 17 lenders, including larger institutions. Earlier this month, Fitch downgraded the US long-term credit rating, citing political dysfunction and growing debt loads.

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