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Lanon Wee

Fitch Issues Notice of Potential Downgrades for Numerous Banks Including JPMorgan Chase

In June, Fitch Ratings lowered its assessment of the banking sector's well-being, which Chris Wolfe claimed flew under the radar since it didn't lead to any bank ratings drops. Wolfe revealed to CNBC that a second one-notch step down from the current AA- to A+ would require Fitch to examine the rankings of the over 70 U.S. banks it follows. He noted, "If we go down to A+, that would necessitate readjusting all our financial metrics and could likely lead to negative rating moves." A Fitch Ratings analyst raised the alarm that the US banking industry is nearing another source of instability: the possibility of sweeping rating reductions for up to seventy US banks, which could potentially include the likes of JPMorgan Chase. In June, the ratings agency downgraded its ratings of the sector, but Chris Wolfe mentioned that this went largely undetected without leading to any bank downgrades. It is possible, however, that a one-notch downgrade from AA- to A+ could cause Fitch to reconsider the ratings of the affected 70+ US banks. "This could bring about lesser ratings, in which case our figures must be recalibrated," Wolfe said in an interview at Fitch's New York office. Credit rating firms have been in the news lately as they generate fluctuations in the market. For example, a few days ago, Moody's downgraded 10 smaller banks and issued a warning for 17 more, including larger organizations such as Truist and US Bank. Moreover, Fitch's decision to reduce the US's long-term credit rating due to politicalgridlock and rising debt did not please business execs like Jamie Dimon. The concert was unexpectedly amazing The concert exceeded expectations. Fitch is determined to make it known that while not a certainty, a downgrade of banks may be a risk, Wolfe noted. The June action resulted in the industry's score being decreased to AA- from AA due to the decrease in the nation's credit rating, the shortcoming noted in the March regional bank failings, and the doubt in regards to interest rates. The issue if there is another downgrade to A+ is the industry's score will be lower than some of its best-rated lenders. If this is the case, it is likely the two biggest banks by assets, JPMorgan and Bank of America, will be lowered to A+ from AA- as these banks can't be given a higher rating than the environment in which they function. Wolfe also said that if the top banks are downgraded, Fitch will have to mull over downgrading the ratings of its other peers which may take some weaker lenders nearer to non-investment-grade status. Shares of banks such as JPMorgan, Bank of America, and Citigroup weakened in premarket trading Tuesday. For example, BankUnited, located in Miami Lakes, Florida and currently rated BBB, is already at the lowest range of what investors consider investment grade. If the firm, which has a negative prospects, decreases one more level, it would be very close to being a non-investment-grade rating. Wolfe said he did not want to guess when or what effect this potential fall might have on lower-rated firms. "We will have to make decisions both on an individual basis and comparatively," Wolfe said. "For instance, it could be that there are some BBB- banks that we have already discounted enough and they could hold on to their rating." JPMorgan opted not to comment on the issue, while Bank of America and BankUnited did not instantly reply to requests for comments. The Federal Reserve's path of determining interest rates remains the most influential element in terms of what could cause Fitch to downgrade the industry. Although some market forecasters have said the Fed may lower rates in the coming year, there is no assurance this will occur. If the Fed unexpectedly raises rates for a longer period, it will most likely put pressure on the industry's profit margins.Wolfe noted the impact of a potential rate-hiking environment on loan defaults, which Fitch takes into consideration. "We don't know how high [the Fed] will go, since this will be a vital element of the said banking system," he stated.In the event of broader downgrades, the Morgan Stanley analysts have suggested investors will demand banks offer bigger returns on their bonds, thus limiting their profit margins. Furthermore, there exist fears that certain banks could be excluded from the debt market altogether. Other consequences of downgrades may include triggering provisions in lending agreements or other contracts.Although Wolfe remarked that the industry could sustain its current AA- rating for the following decade, he concluded that if it drops there will be consequences to be faced.

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