US bank stocks drop amid the possibility of tighter controls and more cuts

A person waits on a Wall Street subway platform in Manhattan’s financial district, New York City, US, August 20, 2021. REUTERS/Andrew Kelly/File Photo

(Reuters) – US bank stocks fell on Tuesday as the prospect of tougher regulations and a downgrade of credit ratings for several lenders by ratings agency Fitch raised investor concerns about the health of the sector.

FDIC President Martin Gruenberg said in a speech Monday that the agency plans to propose new rules to overhaul how large regional banks prepare “life wills” — detailed plans for how they will end their businesses if they fail.

The rules are part of sweeping changes US regulators aim to introduce to tighten control of the banking system after the collapse of several lenders in March.

An analyst at Fitch Ratings warned that the agency may downgrade several major US banks, weeks after its rival Moody’s lowered the ratings of 10 medium-sized banks, citing funding risks and weak profitability.

The S&P 500 Banking Index (.SPXBK) fell 2.5%, hitting a one-month low, with JPMorgan Chase (JPM.N) down 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 kind of knew that some of this was coming and that the cuts reflected things that the market had already internalized and taken into account,” said Jack Janasevic, portfolio manager and chief strategist at Natixis Investment Managers.

“It’s just a reflection of public sentiment,” Janasevic added.

Among midsize banks, Western Alliance Bancorp (WAL.N) and PacWest Bancorp (PACW.O) fell more than 3%, respectively. Michael Burry’s Scion Asset Management revealed Monday that it has sold its stakes in both banks. Comerica (CMA.N) and KeyCorp (KEY.N) were also among the losers, dropping more than 4% each.

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US benchmark 10-year Treasury yields reached a near 10-month high of 4.274% on Tuesday before falling rapidly, reinforcing expectations that the Federal Reserve may maintain interest rates for a while longer.

Quincy Crosby, chief global strategist at LBL Financial, said bank depositors will likely be watching whether higher interest rates could put more pressure on small and regional banks.

Additional reporting by Nikit Nishant in Bengaluru and Shibuiki Ogo in New York; Additional reporting by Saeed Azhar in New York. Editing by Aaron Koyoor, Sriraj Kaluvella, and Thomas Janowski

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Nikit Nishant reports on breaking news and quarterly earnings for Wall Street’s biggest banks, card companies, fintech startups and asset managers. It also covers the largest IPOs on US stock exchanges, late-stage venture capital financing along with news and regulatory developments in the cryptocurrency industry. His writing appears in the finance, business, markets, and future of money sections of the website. He has done post graduation from Indian Institute of Journalism and New Media (IIJNM) Bengaluru.

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

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