Markets & Finance

S&P Downgrades Wells Fargo, U.S. Bancorp, Other Banks


The ratings agency lowered its ratings and revised its outlooks on 22 banks, as stress tests signal the potential for more pain ahead

From Standard & Poor's RatingsDirectStandard & Poor's Ratings Services lowered its ratings and revised its outlooks on 22 rated U.S. banks on June 17. The actions reflect S&P Ratings' belief that operating conditions for the industry will become less favorable than they were in the past, characterized by greater volatility in financial markets during credit cycles, and tighter regulatory supervision.

The changes also reflect S&P Ratings' ongoing broad-ranging reassessment of industry risk for U.S. financial institutions.

S&P Ratings' overall assessment of the U.S. banking industry incorporates the following key points:

The industry is now in a transition and will likely undergo material structural changes;

The loss content of loan portfolios should increase, but recent capital rebuilding should help banks defray these losses;

Stress tests point to more pain in the future;

S&P Ratings doesn't view regional banks as being highly systemically important; and

Potential losses could increase beyond S&P Ratings' current expectations.

"We believe the banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions," says S&P credit analyst Rodrigo Quintanilla. "Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace's new reality. Such a transition period justifies lower ratings as industry players implement changes." Possible changes include increased regulatory oversight and lower profitability.

In addition, S&P Ratings reassessed the relative creditworthiness of many institutions based on their abilities to deal with the increased risks during this transition period.

"We believe some firms may be better able to weather the risks ahead than others," Quintanilla adds. "In the long term, we could foresee ourselves raising ratings if lower earnings and reduced risk are accompanied by stronger risk-adjusted capital and effective governance."

As a result of the most recent downgrades, as well as those since mid-2007, the counterparty ratings on U.S. banks (at the operating subsidiary level) have fallen by an average of two notches, to BBB+ today from A before the crisis began in June 2007.

However, says Quintanilla, "the high number of firms with negative outlooks suggests that the ratings could still decline if the credit cycle is longer and/or deeper."

S&P Ratings Actions on Banks -- June 17, 2009

Company

To

From

Associated Banc Corp. (ASBC)

BBB/Negative

BBB+/Watch Neg

Astoria Financial Corp. (AF)

BBB-/Negative

BBB/Watch Neg

BB&T Corp. (BBT)

A/Stable

A+/Watch Neg

Capital One Financial Corp. (COF)

BBB/Negative

BBB+/Watch Neg

Carolina First Bank (TSFG)

BB+/Negative

BBB/Watch Neg

Citizens Republic Bancorp Inc. (CRBC)

BB-/Negative

BBB-/Watch Neg

Comerica Inc. (CMA)

A-/Negative

A/Watch Neg

Fifth Third Bancorp (FITB)

BBB/Negative

A-/Watch Neg

First National Bank of Omaha

BBB-/Negative

BBB-/Watch Neg

Huntington Bancshares Inc. (HBAN)

BB+/Negative

BBB/Watch Neg

KeyCorp (KEY)

BBB+/Negative

A-/Watch Neg

M&T Bank Corp. (MTB)

A-/Negative

A-/Watch Neg

PNC Financial Services Group (PNC)

A/Stable

A/Watch Neg

Regions Financial Corp. (RF)

BBB+/Negative

A/Watch Neg

Susquehanna Bancshares Inc. (SUSQ)

BBB-/Negative

BBB/Watch Neg

Synovus Financial Corp. (SNV)

BB-/Negative

BBB+/Watch Neg

U.S. Bancorp (USB)

A+/Stable

AA/Watch Neg

Valley National Bancorp (VLY)

A-/Negative

A-/Stable

Webster Financial Corp. (WBS)

BBB-/Negative

BBB/Watch Neg

Wells Fargo & Co. (WFC)

AA-/Negative

AA/Watch Neg

Whitney Holding Corp. (WTNY)

BB+/Negative

BBB/Watch Neg

Wilmington Trust Corp. (WL)

BBB/Negative

BBB+/Watch Neg


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