Higher funding costs and profitability pressures were a common theme in banks' second-quarter earnings. Also failure to pay back loans.

By Mack Wilowski

Ratings agency Moody's cut the credit ratings of 10 small and midsized banks late Monday, while placing six big lenders on notice for a future downgrade, citing profitability challenges and funding risks.

Key Takeaways

Ratings agency Moody's cut the credit ratings of 10 smaller regional and midsized banks late Monday, and assigned a negative outlook for six big lenders.

The agency cited higher funding costs, profitability pressures, and slowing loan growth as a common theme in banks' second-quarter earnings, and said the Fed's rate hikes will lower profitability as consumers take out fewer loans.

Among the bigger banks, Moody's reasons for assigning a negative outlook varied by lender. Some, including U.S. Bancorp and Truist Financial, have low capital buffers, while others, including State Street and BNY Mellon, have experienced large deposit outflows.

The agency downgraded the credit ratings of 10 midsized banks by one notch. They were M&T Bank (MTB), Webster Bank (WBS), Pinnacle Financial Partners (PNFP), BOK Financial Corp. (BOKF), Associated Banc-Corp. (ASB), Old National Bancorp (ONB), Amarillo National Bank, Commerce Bancshares (CBSH), Prosperity Bank (PB), and Fulton Financial Corp. (FULT).1

It also assigned a negative outlook to six top-tier lenders—Bank of New York Mellon (BK), U.S. Bancorp (USB), State Street Corp. (STT), Truist Financial Corp. (TFC), Northern Trust Corp. (NTRS), and Cullen/Frost Bankers Inc. (CFR)—placing them on review for a potential future downgrade.1