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US bank stocks fall on prospect of tougher oversight, more downgrades

A person waits on the Wall Street subway platform in the Financial District of Manhattan, New York City

A person waits on the Wall Street subway platform in the Financial District of Manhattan, New York City, U.S., August 20, 2021. REUTERS/Andrew Kelly/File Photo

Aug 15 (Reuters) – Shares of U.S. banks dropped on Tuesday as the prospect of tighter regulations and a possible downgrade of several lenders by Fitch Ratings raised investor concerns over the health of the sector.

Federal Deposit Insurance Corporation Chairman Martin Gruenberg said in a speech on Monday that the agency planned to propose new rules to overhaul how large regional banks prepare “living wills” – detailed plans on how they would wind up their businesses should they fail.

The rules are part of sweeping changes U.S. regulators are aiming to introduce to tighten oversight of the banking system following the collapse of several lenders in March.

A Fitch Ratings analyst warned that the agency could downgrade several large U.S. banks, weeks after rival Moody’s cut the ratings of 10 mid-sized lenders, citing funding risks and weaker profitability.

The S&P 500 banking index (.SPXBK) was down 2.5%, hitting its lowest in a month, with JPMorgan Chase (JPM.N) falling nearly 4%. Bank of America (BAC.N), Wells Fargo (WFC.N), Goldman Sachs Group (GS.N), Citigroup (C.N) and Morgan Stanley (MS.N) declined between 1.7% and 2.1%.

“We kind of knew some of this was coming and the downgrades are reflective of stuff the market has already digested and taken into consideration,” said Jack Janasiewicz, portfolio manager and lead strategist at Natixis Investment Managers.

“It’s just a reflection of the general sentiment,” Janasiewicz added.

Among the mid-sized banks, Western Alliance Bancorp (WAL.N) and PacWest Bancorp (PACW.O) were down more than 3%, respectively. Michael Burry’s Scion Asset Management had disclosed on Monday that it had sold its stake in both banks. Comerica (CMA.N) and KeyCorp (KEY.N) were also among the losers, dropping more than 4% each.

Benchmark 10-year U.S. Treasury yields hit an almost 10-month high at 4.274% on Tuesday before quickly dipping, boosting expectations that the Federal Reserve could hold rates for longer.

Bank depositors will probably watch whether higher rates could put further pressure on small and regional banks, said Quincy Krosby, chief global strategist at LPL Financial.

Reporting by Niket Nishant in Bengaluru and Chibuike Oguh in New York; Additional reporting by Saeed Azhar in New York. Editing by Arun Koyyur, Sriraj Kalluvila and Tomasz Janowski

Our Standards: The Thomson Reuters Trust Principles.

Niket Nishant reports on breaking news and the quarterly earnings of Wall Street’s largest banks, card companies, financial technology upstarts and asset managers. He also covers the biggest IPOs on U.S. exchanges, and late-stage venture capital funding alongside news and regulatory developments in the cryptocurrency industry. His writing appears on the finance, business, markets and future of money sections of the website. He did his post-graduation from the Indian Institute of Journalism and New Media (IIJNM) in Bengaluru.

Chibuike reports on mostly large U.S.-based private equity firms, including Blackstone, KKR, Carlyle, and Apollo. He previously worked at Bloomberg News, and holds master’s degrees in journalism from New York University and Edinburgh Napier University.
Contact: 332-999-6154

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