S&P Global has issued a negative outlook on five U.S. regional banks, citing increased challenges stemming from higher office vacancies and a growing number of loan maturities looming on the horizon.
The banks affected by the downgrade include First Commonwealth Financial Corp., M&T Bank Corp., Synovus Financial Corp., Trustmark Corp., and Valley National Bancorp, all of which were downgraded from stable to negative outlooks. According to S&P analyst Brendan Browne, the increase in criticized and modified loans, coupled with rising loan maturities, could signal potential deterioration in asset quality and performance.
However, on the positive side, most of these banks have not reported significant increases in delinquent and nonaccrual commercial real estate loans. Despite this, Valley National has seen a decline in the value of its bonds in 2024, attributed to its large exposure to rent-regulated multifamily loans and office space. In contrast, bond prices for M&T Bank and Synovus have remained strong throughout the year.
While S&P did not cut ratings on the specific bonds issued by these banks, they emphasized the banks’ solid underwriting track records and limited deterioration in asset quality. Nevertheless, the negative outlook reflects concerns about the banks’ exposure to commercial real estate loans, which make up a significant percentage of their loan portfolios, ranging from about 25% to 55% as of the end of 2023.
Despite the negative outlook, S&P reiterated BBB- issuer credit ratings for First Commonwealth Financial, Synovus, and Valley National, which represent the lowest rating for investment-grade debt. Trustmark retained a BBB rating, while M&T Bank held a BBB+ rating for its issuer credit.
With the addition of these five debt outlook downgrades, S&P now has nine U.S. banks with negative outlooks, covering approximately 18% of the banks it covers. This move follows S&P’s decision in 2023 to cut its ratings outlook to negative for Columbia Banking System and S&T Bancorp.