S&P issues negative outlook on five U.S. regional banks due to risky office space exposure
By Steve Gelsi
Higher vacancies trigger rise in criticized and modified loans, as a maturity wall looms
S&P Global has issued a negative outlook on five U.S. regional banks facing an increased challenge from higher office vacancies as well as an increasing number of loan maturities on the horizon.
First Commonwealth Financial Corp. (FCF), M&T Bank Corp., (MTB), Synovus Financial Corp. (SNV), Trustmark Corp. (TRMK) and Valley National Bancorp (VLY) were downgraded to a negative outlook, from stable.
"Increases in criticized and modified loans and increasing loan maturities may foreshadow an eventual material deterioration in asset quality and performance," S&P analyst Brendan Browne said in a research note.
On the plus side for the banks, however, most haven't reported a sharp rise in delinquent and nonaccrual commercial real estate loans.
A check of bond prices by M&T Bank, Synovus and Valley National shows that Valley National has seen a drop in the value of its bonds in 2024 as its large exposure to rent-regulated multifamily loans has weighed on its debt, along with its office space exposure. (See chart below.)
Valley National's bond prices have fallen amid jitters in the banking sector around the lower value of multifamily real estate in New York City tied to New York Community Bancorp (NYCB).
Valley National built up its loan loss reserves by 130% in the fourth quarter, as it prepared for potential stress in its loan portfolio or other challenges
Also read: New York Community Bancorp led increase in loan-loss reserves by big regional banks as lenders brace for potential downturn
Meanwhile, bond prices of M&T Bank and Synovus have remained strong in 2024.
S&P did not cut any ratings on the specific bonds issued by the banks, which still offer "solid underwriting track records" as well as limited deterioration in asset quality.
Most of the five banks with revised negative outlooks currently manage more office property loans as a total percentage of their portfolio compared to their peers.
Commercial real estate loans make up between about 25% and 55% of the loans at each of the five banks as of the end of 2023, S&P noted.
S&P reiterated BBB- issuer credit ratings for First Commonwealth Financial, Synovus and Valley National.
The rating of BBB- is the lowest rating for investment-grade debt.
S&P stuck to a BBB issuer credit rating for Trustmark and a BBB+ issuer credit rating for M&T Bank.
Including the five debt outlook downgrades on Tuesday by S&P, the debt rating firm now has nine U.S. banks with negative outlooks, for a total of about 18% of U.S. banks that it covers.
In 2023, S&P cut its ratings outlook to negative for Columbia Banking System (COLB) and S&T Bancorp (STBA).
Also read: Regional-bank bondholders seem unworried by New York Community Bank's problems
-Steve Gelsi
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
03-27-24 1044ET
Copyright (c) 2024 Dow Jones & Company, Inc.-
What History Tells Us About the Fed’s Next Move
-
What’s Happening In the Markets This Week
-
Alphabet’s New Dividend: What Investors Need to Know
-
Going Into Earnings, Is Palantir Stock a Buy, a Sell, or Fairly Valued?
-
Going Into Earnings, Is Eli Lilly Stock a Buy, a Sell, or Fairly Valued?
-
What’s the Difference Between the CPI and PCE Indexes?
-
5 Stocks to Buy That We Still Like After They’ve Run Up
-
Markets Brief: Stocks Are Starting to Look Cheap Again
-
AbbVie Earnings: Next-Generation Immunology Drugs Help Offset Humira Biosimilar Pressure
-
Exxon Earnings: Ignore Earnings Shortfall as Long-Term Growth and Improvement on Track
-
American Airlines Earnings: We See Costs Overshadowing Market Share This Year
-
Snap Earnings: Advertising Growth and Snapchat+ Drive Monetization
-
STMicro Earnings: We Still See an Attractive Margin of Safety Despite a Poor First-Half Forecast
-
Alphabet Shares Surge on Strong Earnings, Dividend Surprise
-
Microsoft Earnings: Firm Beats Forecasts on Strong AI and Cloud Demand
-
PG&E Earnings: Near-Term Regulatory Certainty Supports Industry-Leading Earnings Growth