Wednesday, June 17, 2009

S&P Cuts U.S. Banks, Citing Regulation, Volatility

Standard & Poor’s reduced its credit ratings on 18 U.S. banks, including Wells Fargo & Co., Capital One Financial Corp. and KeyCorp, citing tighter regulation and increased market volatility.

Five of the lenders, Carolina First Bank, Citizens Republic Bancorp Inc., Huntington Bancshares Inc., Synovus Financial Corp. and Whitney Holding Corp., were cut to “junk” status. High-yield, high-risk, or junk, debt is rated below BBB- by S&P.

“Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace’s new reality,” S&P credit analyst Rodrigo Quintanilla said in a statement today. “Such a transition period justifies lower ratings as industry players implement changes.”

Banks and financial firms worldwide have recorded more than $1.4 trillion in writedowns and credit losses since 2007 as the U.S. housing market collapsed and the economy sank into recession. President Barack Obama is expected today to announce a proposal, crafted by Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers, to revamp financial regulation.

“The broad sense is we have not seen the bottom there yet,” said Bert Ely, a banking consultant in Alexandria, Virginia. “For later this year, and into next year, there are just big question marks out there.”

BB&T, Regions

BB&T Corp., Regions Financial Corp. and U.S. Bancorp were also among the lenders downgraded today. S&P said it plans to hold a conference call tomorrow to discuss the decision, which came after S&P placed 23 financial companies on watch last month for possible downgrades.

S&P today affirmed PNC Financial Services Group’s A credit rating and moved its outlook on the lender to stable from negative.

The 24-company KBW Bank Index fell 4 percent as of 11:05 a.m., extending its drop so far this year to 20 percent.

Credit-default swaps of Wells Fargo rose 10 basis points to 155 basis points, the highest since May 7, at 10:07 a.m. in New York, according to CMA DataVision. Contracts on Capital One Financial Corp. jumped 23 basis points to a one-month high of 204 basis points, the biggest gain since April 21.

BB&T’s 6.85 percent notes due in 2019 fell 0.45 cent to 102.1 cents on the dollar to yield 6.6 percent, according to Trace, the bond-pricing system of the Financial Industry Regulatory Authority.

Bonds of banks and insurers have rallied 17 percent since March 10 through yesterday as investors gained confidence the worst of the financial crisis has passed, according to Merrill Lynch & Co. index data.