Moody’s Downgrades or Withdraws Ratings on Seven Banks

Moody’s Investors Service have downgraded or withdrawn its ratings from seven different banks.

The decision follows the collapse of multiple banks. Last week, Silicon Valley Bank (SVB) and Silvergate Bank were taken over by the Federal Deposit Insurance Corporation (FDIC). On Sunday, Signature Bank in New York went down the same path.

Moody’s had previously downgraded the ratings of SVB Financial Group (SVB) and its bank subsidiary, Silicon Valley Bank. Silicon Valley Bank’s long-term local currency bank deposit and issuer ratings were downgraded to Caa2 from A1 and C from Baa1, respectively. It had also said it had withdrawn its ratings

The federal government has announced several programs aimed at supporting the banking system including a statement that all deposits are secure.

Below are the ratings of the seven different banks.

  • Signature Bank: Moody’s downgrades Signature Bank (subordinate debt to C from Baa2) and will withdraw ratings
  • First Republic: Moody’s places First Republic Bank’s ratings under review for downgrade
  • INTRUST Financial Corporation: Moody’s places INTRUST Financial Corporation’s ratings under review for downgrade
  • UMB Corporation: Moody’s places UMB Financial Corporation’s ratings under review for downgrade (UMB Bank, N.A. long-term deposits Aa3)
  • Zions Bancorporation: Moody’s places Zions Bancorporation, N.A.’s ratings under review for downgrade (long-term deposits A1)
  • Western Alliance: Moody’s places Western Alliance’s ratings on review for downgrade
  • Comerica Incorporated: Moody’s places Comerica Incorporated’s ratings on review for downgrade

Some excerpts on Moody’s justification on its actions follow:

Comerica:

Comerica’s high reliance on more confidence sensitive uninsured deposit funding, its high amount of unrealized losses in its available-for-sale (AFS) securities portfolio, as well as a relatively lower level of capitalization. Although Comerica’s proportion of market funding as a percentage of tangible banking assets is moderate, its market funding has increased over the last year. Comerica’s share of deposits that are above the Federal Deposit Insurance Corporation (FDIC)’s insurance threshold is material, making the bank’s funding profile more sensitive to rapid and large withdrawals from depositors. In addition, if it were to face higher-than-anticipated deposit outflows, the bank could need to sell assets, thus crystalizing unrealized losses on its AFS securities, which as of 31 December 2022, represented a sizeable 38.5% of its common equity tier 1 capital. The weaknesses in Comerica Incorporated’s funding and liquidity profiles are somewhat offset by its conservative credit culture. This has resulted in strong asset quality performance through cycles. Its recent profitability has been solid, benefiting from the higher interest rate environment.

First Republic:

First Republic Bank’s high reliance on more confidence-sensitive uninsured deposit funding, its high amount of unrealized losses in its available-for-sale (AFS) and held-to-maturity (HTM) securities portfolios, as well as a low level of capitalization relative to peers. The share of deposits that are above the Federal Deposit Insurance Corporation (FDIC)’s insurance threshold is material, making the bank’s funding profile more sensitive to rapid and large withdrawals from depositors. In addition, if it were to face higher-than-anticipated deposit outflows and liquidity backstops proved insufficient, the bank could need to sell assets, thus crystalizing unrealized losses on its AFS or HTM securities, which as of December 2022 represented 37.7% of its common equity tier 1 capital. Such crystallization of losses, if it were to happen, could materially weigh on the bank’s profitability and capital, which at the same date were modest compared to peers, with a return on asset of 0.78% and a tangible common equity (TCE) over risk-weighted asset ratio of 9.1%. In February 2023, First Republic issued about $400 million in common equity. The weaknesses in First Republic’s funding and liquid asset profiles are somewhat offset by additional official sector borrowing capacity and the bank’s strong franchise in private banking and private wealth management for high-net-worth households. Underwriting and loan portfolio performance have also been strong.

INTRUST:

INTRUST has some reliance on more confidence sensitive uninsured deposit funding, its high amount of unrealized losses in its available-for-sale (AFS) securities portfolio, as well as a relatively low level of capitalization. In addition, if the Bank were to face higher-than-anticipated deposit outflows, the bank could need to sell assets, thus crystalizing unrealized losses on its AFS securities, which as of December 2022, represented a sizeable 91% of its common equity tier 1 capital. Such crystallization of losses, if it were to happen, could materially weigh on the bank’s capital and profitability. INTRUST’s capital, measured by its tangible common equity (TCE) over risk-weighted assets, was 8.04% in December 2022, which is weaker than peers. INTRUST’s common equity tier 1 capital ratio was 9.6% at the end of 2022. These weaknesses in INTRUST’s funding profle are somewhat offset by its healthy and stable profitability. INTRUST’s proportion of market funding over total assets and its share of deposits which are above the Federal Deposit Insurance Corporation (FDIC)’s insurance threshold, are both low, which somewhat mitigates its funding and liquidity risk to a degree.

UMB:

UMB’s high reliance on more confidence-sensitive uninsured deposit funding, its high amount of unrealized losses in its available-for-sale (AFS) and held-to-
maturity (HTM) securities portfolios. Although UMB’s proportion of market funding over total assets is low, the share of deposits that are above the Federal Deposit Insurance Corporation (FDIC)’s insurance threshold is material, making the bank’s funding profile more sensitive to rapid and large withdrawals from depositors. In addition, to facing higher-than-anticipated deposit outflows, the bank could need to sell assets, thus crystalizing unrealized losses on its AFS or HTM securities, which as of December 2022 represented 51% of its common equity tier 1 capital. Such crystallization of losses, if it were to happen, could materially weigh on the bank’s profitability and capital. Although UMB’s TCE over risk-weighted assets is relatively sound at 10.54%, its return on assets of 0.94% is relatively modest when compared to peers. These weaknesses in UMB’s funding and liquid asset profiles are somewhat offset by its sound asset quality performance, even though we expect some deterioration in credit performance as economic conditions tighten.

Western Alliance Bancorporation:

Western Alliance’s high reliance on more confidence-sensitive uninsured deposit funding, material unrealized losses in its available-for-sale (AFS), and held-to-
maturity (HTM) securities portfolios, as well as a relatively low, though improving, level of capitalization. Although Western Alliance’s proportion of market funding over total assets is modest, the share of its deposits that are above the Federal Deposit Insurance Corporation (FDIC)’s insurance threshold is significant. At year-end 2022, uninsured deposits were 58% of total deposits. That said, Western Alliance recently disclosed that when accounts eligible for pass-through insurance are included, its insured deposits exceed 50% of total deposits. To counter this funding vulnerability, Western Alliance announced on 13 March 2023 that it had boosted its cash reserves to in excess of $25 billion, an increase in its liquidity pool that will be assessed during the review process. Still, if it were to face higher-than-anticipated deposit outflows, Western Alliance could need to sell assets, thus crystalizing unrealized losses on its AFS or HTM securities, which as of December 2022 represented 21% of its common equity tier 1 capital on a non-tax effected basis. Such crystallization of losses, if it were to happen, could weigh on the bank’s profitability and capital. Moody’s added that Western Alliance’s liquid assets represented 12% of tangible assets at December 2022, which is modest compared with most rated peers. The weaknesses in Western Alliance’s funding and liquid asset profits are offset by the bank’s strong profitability, owing to good operational efficiency and a high net interest margin, as well as sound asset quality. In addition, although Western Alliance’s common equity tier 1 ratio at 31 December 2022 was 9.3%, which is lower than many peers, it improved from 8.7% one quarter earlier.

Zion Bancorporation:

Zions’ has a modestly high reliance on more confidence-sensitive uninsured deposit funding, its high amount of unrealized losses in its available-for-sale (AFS) and held-to-maturity (HTM) securities portfolios, as well as a relatively low level of capitalization. Although Zions’ proportion of market funding over total assets is low, the share of deposits that are above the Federal Deposit Insurance Corporation (FDIC)’s insurance threshold is material, making the bank’s funding profile more sensitive to rapid and large withdrawals from depositors. Zions stated on its most recent earnings call that it has no plans to sell its securities portfolio at a loss, noting its access to a variety of funding sources. However, if it were to face higher-than-anticipated deposit outflows, the bank could need to sell assets, thus crystalizing unrealized losses on its AFS or HTM securities, which as of December 2022 represented 51% of its common equity tier 1 capital. Such crystallization of losses, if it were to happen, could materially weigh on the bank’s profitability and capital, which at the same date were modest compared to peers, with a return on asset of 1.01% and a TCE over risk-weighted asset ratio of 8.91%. Zions’ common equity tier 1 capital ratio was 9.8% at the end of 2022. These weaknesses in Zions’ funding and liquid asset profiles are somewhat offset by its sound asset quality performance, even though we expect some deterioration in credit performance as the economic and credit cycles turn.


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