S&P Global announced on Tuesday a downgrade in ratings for five regional U.S. banks due to their significant exposures to commercial real estate (CRE). The affected banks include First Commonwealth Financial, M&T Bank, Synovus Financial, Trustmark, and Valley National Bancorp, which saw their ratings shift from "stable" to "negative."
The downgrade reflects potential stress in CRE markets that could negatively impact the asset quality and performance of these banks. S&P highlighted that these institutions have among the highest CRE loan exposures of the banks it evaluates.
Following the announcement, the banks have yet to respond to requests for comments. This development adds to existing investor concerns regarding regional banks' CRE exposure. These concerns were amplified earlier in the year after New York Community Bancorp reported an unexpected quarterly loss due to provisions for bad CRE loans, leading to a sell-off in U.S. regional bank shares.
Anxiety among investors and analysts has been growing due to fears that rising borrowing costs and persistent low occupancy rates in office spaces post-COVID-19 could lead to increased loan defaults. The downgrades occur amidst this backdrop and a year after the collapse of Silicon Valley Bank and Signature Bank, events that have made investors particularly wary about the health of U.S. regional banks.
The banking sector is also grappling with the challenge of retaining deposits amidst high interest rates. As of Tuesday, S&P has assigned negative outlooks to nine U.S. banks, representing 18% of those it rates, with many of these outlooks partially attributed to significant CRE exposures.
