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Fitch Warns It May be Forced to Downgrade Dozens of Banks

News | Aug 16, 2023

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A Fitch Ratings Analyst has issued a warning that the U.S. banking industry is moving closer to potential sweeping rating downgrades on numerous lenders. This includes major banks such as JPMorgan Chase and Bank of America.

In June, Fitch Ratings reduced its assessment of the banking industry's health. This move, according to analyst Chris Wolfe, went largely unnoticed as it didn't result in immediate downgrades of banks.

If there's another one-notch downgrade of the industry's score from AA- to A+, Fitch would need to reevaluate ratings for over 70 U.S. banks.

Chris Wolfe mentioned:

If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions.

The path of interest rates determined by the Federal Reserve is a significant factor. If interest rates remain high for an extended period, it could pressure the industry's profit margins. Further, if loan defaults rise beyond what Fitch considers a historically normal level, it could also influence the decision.

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Banks that are downgraded might have to offer higher returns to bond investors, compressing their profit margins. Some banks might even face challenges accessing debt markets.


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