U.S. bank stocks fall on the prospect of tougher supervision and further downgrades

A person waits in the Wall Street Subway in Manhattan’s financial district on August 20, 2021 in New York City, USA. REUTERS/Andrew Kelly/File Photo

Aug 15 (Reuters) – Shares of U.S. banks fell on Tuesday as Fitch Ratings hit on tighter restrictions and downgrades of several lenders.

Federal Deposit Insurance Corp. President Martin Grunberg said in a speech Monday that the agency plans to propose new rules to overhaul how big regional banks prepare “living wills.”

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

Just weeks after rival Moody’s downgraded 10 mid-sized lenders, citing financial risks and weak profitability, the agency may downgrade several major U.S. banks, a Fitch Ratings analyst warned.

The S&P 500 banking index ( .SPXBK ) fell 2.5% to its lowest level in a month, while JPMorgan Chase ( JPM.N ) fell nearly 4%. Bank of America ( BAC.N ), Wells Fargo ( WFC.N ), Goldman Sachs Group ( GS.N ), Citigroup ( CN ) and Morgan Stanley ( MS.N ) fell between 1.7% and 2.1%.

“We knew some of this was coming, and the downgrade is a reflection of things the market has already digested and taken into account,” said Jack Janasiewicz, portfolio manager and lead strategist at Natixis Investment Managers.

“It’s a reflection of the general feeling,” Janacewicz added.

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

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The benchmark 10-year U.S. Treasury yield hit a near 10-month high on Tuesday at 4.274%, before easing soon, boosting expectations that the Federal Reserve may keep rates on hold for longer.

Bank depositors will likely watch whether higher rates put more pressure on smaller and regional banks, said Quincy Krosby, chief global strategist at LPL Financial.

Reporting by Niket Nishant in Bangalore and Chibuk Ogu in New York; Additional reporting by Saeed Azhar in New York. Editing by Arun Koiyur, Sriraj Kalluvila and Tomasz Janowski

Our Standards: Thomson Reuters Trust Principles.

Niket Nishant Key news and quarterly earnings reports from Wall Street’s biggest banks, card companies, financial technology and asset managers. He also covers major IPOs and late-stage venture capital funding on US exchanges, along with news and regulatory developments in the cryptocurrency industry. His writing appears in the Finance, Business, Markets and Futures of Money sections of the website. He did his Masters from the Indian Institute of Journalism and New Media (IIJNM), Bangalore.

Chibuike reports on large private equity firms, mostly based in the US, including Blackstone, KKR, Carlyle and Apollo. He previously worked at Bloomberg News and holds a Masters in Journalism from New York University and Edinburgh Napier University. Contact: 332-999-6154

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