Standard & Poors (S&P) just downgraded five more regional banks as pain in the sector continues to spread.

In a new outlook report, S&P says it’s downgrading First Commonwealth Financial Corp., M&T Bank Corp., Synovus Financial Corp., Trustmark Corp. and Valley National Bancorp.

All five banks were downgraded to “negative” from “stable.”

S&P says the banks’ exposure to the troubled commercial real estate (CRE) market is the potential harbinger of weakness ahead.

“Stress in commercial real estate (CRE) markets, such as reduced property prices and higher vacancies particularly for investor-owned office properties, has created a rising challenge for banks with sizable loan exposures to CRE…

While most rated banks haven’t reported a sharp rise in delinquent and nonaccrual CRE loans, increases in criticized and modified loans and increasing loan maturities may foreshadow an eventual material deterioration in asset quality and performance.”

According to S&P, M&T stands out as the bank with one of the worst exposures to CRE, noting that “further deterioration” is now possible for the bank as it struggles to service over $33 billion in loans to the sector.

Office loans in particular – a weak point ever since the Covid-induced normalization of remote work – make up a sizeable part of M&T’s loan portfolio. S&P says such loans are “vulnerable to unfavorable long-term secular trends.”

“CRE loans at M&T are higher than at most rated U.S. banks and are much higher than at similarly rated regional bank peers. CRE loans of $33 billion made up 25% of total loans and roughly 174% of Tier 1 capital as of Dec. 31, 2023; that included construction loan exposures, equal to about 6% of total loans.

We think office exposures, which were nearly 4% of total loans and about 25% of Tier 1 capital, are vulnerable to unfavorable long-term secular trends, and they could deteriorate further. Nonetheless, potential losses on CRE loans, including office loans, should be partially mitigated by conservative loan-to-value ratios at origination.”

Last month, IMF insider Desmond Lachman warned that CRE is a clear Achilles heel for the industry that could result in the failure of around 385 small and medium-sized banks.

“It is estimated that this year more than $900 billion in commercial property loans fall due. It is difficult to see how those loans will be rolled over without major rescheduling. This is especially the case given how much higher interest rates are now than when those loans were originally contracted.

A wave of property loan defaults will be particularly problematic for the regional banks that are a major source of finance for small and medium-sized companies. Commercial property loans constitute around 18% of those banks’ overall loan portfolios.”

 

Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

The post S&P Global Downgrades Five US Banks, Warns Lenders Hold Billions of Dollars in Loans That May Face ‘Material Deterioration’ appeared first on The Daily Hodl.

Standard & Poors (S&P) just downgraded five more regional banks as pain in the sector continues to spread.

In a new outlook report, S&P says it’s downgrading First Commonwealth Financial Corp., M&T Bank Corp., Synovus Financial Corp., Trustmark Corp. and Valley National Bancorp.

All five banks were downgraded to “negative” from “stable.”

S&P says the banks’ exposure to the troubled commercial real estate (CRE) market is the potential harbinger of weakness ahead.

“Stress in commercial real estate (CRE) markets, such as reduced property prices and higher vacancies particularly for investor-owned office properties, has created a rising challenge for banks with sizable loan exposures to CRE…

While most rated banks haven’t reported a sharp rise in delinquent and nonaccrual CRE loans, increases in criticized and modified loans and increasing loan maturities may foreshadow an eventual material deterioration in asset quality and performance.”

According to S&P, M&T stands out as the bank with one of the worst exposures to CRE, noting that “further deterioration” is now possible for the bank as it struggles to service over $33 billion in loans to the sector.

Office loans in particular – a weak point ever since the Covid-induced normalization of remote work – make up a sizeable part of M&T’s loan portfolio. S&P says such loans are “vulnerable to unfavorable long-term secular trends.”

“CRE loans at M&T are higher than at most rated U.S. banks and are much higher than at similarly rated regional bank peers. CRE loans of $33 billion made up 25% of total loans and roughly 174% of Tier 1 capital as of Dec. 31, 2023; that included construction loan exposures, equal to about 6% of total loans.

We think office exposures, which were nearly 4% of total loans and about 25% of Tier 1 capital, are vulnerable to unfavorable long-term secular trends, and they could deteriorate further. Nonetheless, potential losses on CRE loans, including office loans, should be partially mitigated by conservative loan-to-value ratios at origination.”

Last month, IMF insider Desmond Lachman warned that CRE is a clear Achilles heel for the industry that could result in the failure of around 385 small and medium-sized banks.

“It is estimated that this year more than $900 billion in commercial property loans fall due. It is difficult to see how those loans will be rolled over without major rescheduling. This is especially the case given how much higher interest rates are now than when those loans were originally contracted.

A wave of property loan defaults will be particularly problematic for the regional banks that are a major source of finance for small and medium-sized companies. Commercial property loans constitute around 18% of those banks’ overall loan portfolios.”

 

Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

The post S&P Global Downgrades Five US Banks, Warns Lenders Hold Billions of Dollars in Loans That May Face ‘Material Deterioration’ appeared first on The Daily Hodl.