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Standard & Poor’s ratings downgrades on U.S. retail banks reflect the continuation of a very difficult environment for US banks that could see further downgrades if conditions decline.

S&P believes:

In the future these firms will operate in a less favorable environment than they did during the past. From now on, we expect greater volatility in financial markets during credit cycles and tighter regulatory supervision.

A new assesment of the U.S. banking industry from S&P incorporates the following key points:

  • The industry is now in a transition and will likely undergo material structural changes;
  • The loss content of loan portfolios should increase, but recent capital rebuilding should help banks defray these losses;
  • Stress tests point to the likelihood of greater losses in the future;
  • We don’t view regional banks as being highly systemically important;
  • Potential losses could increase beyond our current expectations as reflected in the negative outlooks (i.e., a firm’s full potential may not be realized).

As a result of the downgrades this week, as well as those since mid-2007, the counterparty ratings on U.S. banks (at the operating subsidiary level) have fallen by an average of two notches, to ‘BBB+’ today from ‘A’ before the crisis began in June 2007.

We believe the high number of firms with negative outlooks suggests that the ratings could still decline if the credit cycle is longer and/or deeper.

The ratings changes announced June 17 were as follows:

Associated Banc Corp. (ASBC)
Counterparty credit BBB/Negative ( from A-2 BBB+/Watch Neg/A-2)

Astoria Financial Corp. (NYSE:AF) BBB-/Negative/– (from BBB/Watch Neg/–)

Counterparty credit A/Stable (from A-1 A+/Watch Neg/A-1)

Capital One Financial Corp. (NYSE:COF)
Counterparty credit BBB/Negative/– (from BBB+/Watch Neg/–)

Carolina First Bank
Counterparty credit BB+/Negative/B (from BBB/Watch Neg/A-2)

Citizens Republic Bancorp Inc. (NASDAQ:CRBC)
Counterparty credit BB-/Negative/B (from BBB-/Watch Neg/A-3)

Comerica Inc. (NYSE:CMA)
Counterparty credit A-/Negative/A-2 (from A/Watch Neg/A-1)

Fifth Third Bancorp (NASDAQ:FITB)
Counterparty credit BBB/Negative/A-2 (from A-/Watch Neg/A-2)

First National Bank of Omaha
Counterparty credit BBB-/Negative/– (from BBB-/Watch Neg/–)

Huntington Bancshares Inc. (NASDAQ:HBAN)
Counterparty credit BB+/Negative/B (from BBB/Watch Neg/A-2)

KeyCorp (NYSE:KEY)
Counterparty credit BBB+/Negative/A-2 (from A-/Watch Neg/A-2)

M&T Bank Corp.
Counterparty credit A-/Negative/A-2 (from A-/Watch Neg/A-2)

PNC Financial Services Group (NYSE:PNC)
Counterparty credit A/Stable/A-1 (from A/Watch Neg/A-1)

Regions Financial Corp. (NYSE:RF)
Counterparty credit BBB+/Negative/A-2 (from A/Watch Neg/A-1)

Susquehanna Bancshares Inc. (NASDAQ:SUSQ)
Counterparty credit BBB-/Negative/– (from BBB/Watch Neg/–)

Synovus Financial Corp. (NYSE:SNV)
Counterparty credit BB-/Negative/– (from BBB+/Watch Neg/–)

U.S. Bancorp (NYSE:USB)
Counterparty credit A+/Stable/A-1 (from AA/Watch Neg/A-1+)

Valley National Bancorp (NYSE:VLY)
Counterparty credit A-/Negative/– (from A-/Stable/–)

Webster Financial Corp. (NYSE:WBS)
Counterparty credit BBB-/Negative/– (from BBB/Watch Neg/–)

Wells Fargo & Co. (NYSE:WFC)
Counterparty credit AA-/Negative/A-1+ (from AA/Watch Neg/A-1+)

Whitney Holding Corp. (NASDAQ:WTNY)
Counterparty credit BB+/Negative/B (from BBB/Watch Neg/A-2)

Wilmington Trust Corp. (NYSE:WL)
Counterparty credit BBB/Negative/A-2 (from BBB+/Watch Neg/A-2)

Source: S&P Downgrades Reflect Higher Risks for U.S. Banks