pnc financial services inc citizens financial group inc and cullenfrost bankers led a retreat in bank stocks on tuesday after moody’s published 27 ratings actions on us banks the three stocks all posted losses of more than 3 as moody’s downgraded the debt of 10 banks issued negative outlooks on 11 other banks and put six banks on review for a downgrade moody’s cited the impact of a potential us recession in 2024 and higher interest rates on the quality of corporate debt all downgrades were by one notch a onenotch downgrade on debt could mean an extra 01 in the cost of borrowing for the largest banks and up to 1 more for smaller banks depending on balancesheet holdings of each bank according to industry estimates “us banks continue to contend with interest rate and assetliability management alm risks with implications for liquidity and capital as the winddown of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixedrate assets” moody’s analyst jill cetina said “meanwhile many banks’ secondquarter results showed growing profitability pressures that will reduce their ability to generate internal capital” also read jpmorgan goldman and morgan stanley win praise in jefferies q2 bank earnings wrap brian mulberry client portfolio manager at zacks investment management said the moody’s downgrade doesn’t mean that banks face any of the solvency issues that caused the demise of three regional banks earlier this year rather it’s a signal that net interest income will continue to be under pressure as banks pay more to hold deposits while interest payments they get from loans fail to keep up mulberry said bank stocks had a muted reaction to last week’s us sovereign debt downgrade by fitch because investors seemed to look past the negative development on the heels of positive employment data “today’s move seems to be more of an emotional overreaction but it’s no surprise given the pressure on net interest income by banks” mulberry said reaction to the downgrade has been more muted in the corporate bond market where spreads have widened only slightly between the prices being asked by sellers and the prices offered by buyers for three of the more prominent names in the moody’s action state street corp us bancorp and mt bank for his part mulberry has been keeping an eye on retail sales and tightness in the labor market as indicators of when interest rate hikes by the us federal reserve may end but for now it seems like interest rates will stay higher for longer he said when wall street sees gets more visibility on whether interest rates will level off or drop dealmaking and bank profit margins may start to improve he said “historically speaking a 5 interest rate is not a hard stop for business to get done” mulberry said “it’s an adjustment” cullenfrost bankers inc cfr citizens financial group inc cfg and pnc pnc moved more deeply into the red than other bank stocks among the group of 27 banks covered in moody’s review us bancorp usb had the worst score of negative 98 in a measure of interest rate risk funding and assetliability management weaker capital and exposure to commercial real estate us bancorp’s score of negative 98 reflects unrealized availableforsale and heldtomaturity losses and more than 15 residential mortgages as a percentage of tangible capital equity as of march 31 see chart below zacks analyst mulberry said us bancorp’s balance sheet still reflects its 8 billion acquisition of union bank which closed late last year the cost of the merger has been a headwind on profits for the moment he said for its part cullenfrost has one of the highest figures of 13 for tangible common equity as a percentage of riskweighted assets as of march 31 all told moody’s downgraded commerce bancshares inc cbsh baseline credit assessment to a2 from a1 while cutting bok financial corp bokf mt bank corp mtb old national bancorp onb and prosperity bancshares pb to a3 from a2 moody’s also downgraded amarillo national bancorp inc private webster financial corp wbs fulton financial corp fult and pinnacle financial partners inc pnfp to baa1 from a3 and cut its view on associated banccorp asb to baa2 from baa1 bank of new york mellon corp bk northern trust corp ntrs state street corp stt cullenfrost bankers inc truist financial corp tfc and us bancorp were all placed under review banks with negative outlooks rom moody’s are pnc financial services group inc pnc capital one financial corp cof citizens financial group inc cfg fifth third bancorp fitb huntington bancshares inc hban regions financial corp rf cadence bank cade fnb corp fnb simmons first national corp sfnc ally financial inc ally and bank ozk ozk rc whalen chairman of whalen global advisors llc said the fate of bank ratings is tied to us sovereign debt which was cut by fitch last week “when the sovereign goes down everything else in the world or ratings that depends upon it goes down” he said “the sovereign credit of the us is now aa and it may go lower before we are done large banks will definitely move lower” as for regional banks they will likely consider mergers to boost returns as they look for ways to grow profits in coming years according to an sp bank outlook study while bank activity in mergers has been “abysmal” challenges to future profit expansion may lead to more acquisition activity in 2023 and 2024 said sp analysts zain tariq and nathan stovall “the competitive landscape has changed with many institutions responding to the fight for deposits by bolstering liquidity with highercost funding deposits like brokered deposits borrowings from the federal home loan banks and certificates of deposits cds” said the study also read jpmorgan ceo jamie dimon says us should have the highest credit rating in the world