Standard & Poor’s Bank Credit Ratings — June 17, 2009

Standard & Poor’s (S&P) and Moody’s are the giant financial rating agencies. On June 17, 2009, S&P analysts downgraded the credit ratings or outlooks on 22 banks. Eight within this group are bank holding companies (BHCs) that underwent the stress test. The remaider are regional banks. Both of these groups received a one- or two-notch rating cut. They were also put on a negative watch which means that their ratings could be cut even further.  Five of the regional banks were downgraded to “junk” status. The one exception is PNC Financial that was upgraded one notch.

S&P said that its rating modifications reflect “our belief that operating conditions for the industry will become less favorable than they were in the past, characterized by greater volatility in financial markets during credit cycles, and tighter regulatory supervision.”

By way of contrast, Moody’s did not release any bank credit ratings alongside S&P. In fact, Moody’s does not expect to downgrade ratings for any of the BHCs that made TARP fund repayments. Should the economic picture change, Moody’s may cut their ratings.

Also on June 17, the Obama administration proposed an overhaul of financial regulation. For the credit-rating establishment, the administration is only proposing modest changes. Considering that credit-raters at S&P, Moody’s and Fitch gave out high ratings on many subprime securities during the real estate boom, it is unclear why there is no proposal to overhaul the credit-rating industry. To the outrage of detractors, the credit rating establishment will continue to be compensated by investment banks selling the securities. So much for managing conflicts of interest and rating independence.

For stock performance, click on the bank’s link:

Bank Holding Companies	New Rating	Old Rating
BB&T Corp.	A/Stable	A+/Watch Neg
Capital One Financial Corp.	BBB/Negative	BBB+/Watch Neg
Fifth Third Bancorp	BBB/Negative	A-/Watch Neg
KeyCorp	BBB+/Negative	A-/Watch Neg
PNC Financial Services Group	A/Stable	A/Watch Neg
Regions Financial Corp.	BBB+/Negative	A/Watch Neg
U.S. Bancorp	A+/Stable	AA/Watch Neg
Wells Fargo & Co.	AA-/Negative	AA/Watch Neg
Regional Banks
Associated Banc	BBB/Negative	BBB+/Watch Neg
Astoria Financial	BBB-/Negative	BBB/Watch Neg
Carolina First Bank	BB+/Negative “junk” status	BBB/Watch Neg
Citizens Republic Bancorp	BB-/Negative “junk” status	BBB-/Watch Neg
Comerica Inc.	A-/Negative	A/Watch Neg
First National Bank of Omaha (privately owned)	BBB-/Negative	BBB-/Watch Neg
Huntington Bancshares	BB+/Negative “junk” status	BBB/Watch Neg
M&T Bank	A-/Negative	A-/Watch Neg
Susquehanna Bancshares	BBB-/Negative	BBB/Watch Neg
Synovus Financial	BB-/Negative “junk” status	BBB+/Watch Neg
Valley National Bancorp	A-/Negative	A-/Stable
Webster Financial	BBB-/Negative	BBB/Watch Neg
Whitney Holding Corp	BB+/Negative “junk” status	BBB/Watch Neg
Wilmington Trust	BBB/Negative	BBB+/Watch Neg

Rating Definitions:

AAA: Extremely strong capacity to meet its financial commitments.

AA: Very strong capacity to meet its financial commitments.

A: Strong capacity to meet its financial commitments

BBB: Adequate capacity to meet its financial commitments.

BB, B, CCC, and CC: regarded as having significant speculative

characteristics

BB: Adverse business, financial, or economic conditions could

lead to the bank’s inadequate capacity to meet its financial commitments.

B: Adverse business, financial, or economic conditions will likely impair

the bank’s capacity or willingness to meet its financial commitments.

CCC: Currently vulnerable, and is dependent upon favorable business,

financial, and economic conditions to meet its financial commitments.

CC: Highly vulnerable to meet its financial commitments.

R: Under regulatory supervision owing to its financial condition.

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