JPMorgan and Bank of America - the country's two largest banks - may have their credit ratings downgraded by Fitch, one of its analysts has warned.
The move could trigger the downgrading of dozens of other US banks in turn and the onset of a fresh banking crisis, according to a new report from CNBC.
US bank stocks slid following the warning on Tuesday morning, as both JPMorgan and Bank of America's share prices were down around 2.5 percent by midday. Smaller banks felt the heat too. Western Alliance was down around 3 percent.
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Fitch Ratings is an agency that ranks banks based on how leveraged they are and the likelihood they could default. It also assesses the health of the US banking sector as a whole.
The organization's head of US banks, Chris Wolfe, told CNBC an onslaught on individual banks might be necessary because its broader evaluation of the banking climate was increasingly bleak.
The move to downgrade two of the biggest players could trigger the downgrading of dozens of other US banks in turn and the onset of a fresh banking crisis
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Fitch Ratings is an agency that ranks banks based on how leveraged they are and the likelihood they could default but also rates the health of the US banking sector. In June it dropped its rating of the banking sector from AA to AA-
In June, Fitch downgraded the banking sector from AA to AA-. Wolfe said that move went largely unnoticed because it didn't require a downgrade to bank ratings.
But if the sector's rating were to drop another notch to A+, that would have implications on individual banks, since there cannot be banks rated higher than the environment they operate in, Wolfe said.
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'If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions, ' he told CNBC.
Fitch's head of US banks in North America, Chris Wolfe (pictured), told CNBC downgrades to the banks would reflect the health of their 'operating environment'
In terms of assets under management, JPMorgan and Bank of America are the country's two largest banks and both have the highest credit ratings issued to banks by Fitch, AA-.
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They are joined by two other firms, Bank of New York Mellon and State Street. In the tier below them are Morgan Stanley and Wells Fargo, who are trailed by the rest of the country's banks.
AA ratings denote 'very high credit quality' and indicate the agency believes the likelihood of a default is 'very low', whereas a rating of A denotes a 'high credit quality' where a risk of default is just 'low'.
The downgrade earlier this month was attributed to March regional bank failures and uncertainty around interest rates. It was blasted by some business leaders, including JPMorgan CEO Jamie Dimon, who told CNBC it was 'ridiculous' but also claimed it 'doesn't really matter'.
How Safe Is Your Bank? Fitch Warns It Could Downgrade Dozens Of Us Firms Including Jpmorgan Chase And Bank Of America
In a statement earlier this month, the rating agency said: 'In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years.'
It justified the downgrade by arguing the country's finances will likely decline in the face of a growing debt burden and political turmoil.
JPMorgan bank stocks were down more than 2.5 percent on Tuesday morning after a CNBC report that Fitch may downgrade its AA- rating
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Moody's last week cut the credit ratings of ten US regional banks and announced it was reviewing a potential downgrade for six larger ones. Pictured is signage outside its headquarters in Manhattan
Last week Moody's slashed the credit ratings of several regional US banks and warned it may also downgrade some of the nation's biggest lenders.
In a note explaining the ratings action, Moody's analysts cited higher interest rates from the Federal Reserve's inflation battle, as well as a looming 'mild recession' and 'growing profitability pressures' on banks.
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In total, the agency downgraded the credit ratings of 10 smaller banks, placed six more on review for downgrade, and affirmed the ratings of 11 more banks but placed them on 'outlook negative'.
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