Regional bank shares under fire again after credit downgrade, head for worst day in three months

Investors dumped shares of regional bank stocks on Tuesday after Moody’s made changes to the credit outlook for more than two dozen banks across the group, putting the sector on track for its worst day since May.

Moody’s downgraded the credit of 10 small regional banks by one notch apiece, while 17 other banks were either given negative outlook or had their rating put under review.

In a note, Moody’s cited many of the concerns around interest rate risk that led to the collapse of several regional banks earlier this year.

“US banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets. Meanwhile, many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital,” the Moody’s note said.

Among the banks that were downgraded on Tuesday, shares of M&T Bank and Webster Financial fell more than 3% each. Shares of PNC Financial and Citizens Financial Group, which were given negative outlooks by Moody’s, fell about 4%.

The declines dragged down the SPDR S&P Regional Banking ETF (KRE) by about 3.5%. That puts the fund on track for its worst day since May 4, when the fund fell nearly 5.5%.