Moody's Remains Negative on U.S. Banking Sector (BAC, C, GS, JPM, USB, WFC)

Moody’s is panning the U.S. banking sector yet again.  In an updated credit profile on Tuesday, Moody’s said, “The outlook for the US banking system remains negative, with ongoing challenges in the operating environment expected to continue to pressure banks over the next 12 to 18 months.

The report was titled “Banking System Outlook: United States of America” and it reflects the current and future challenges facing the financial sector.  The basis is that the domestic operating environment is challenged with prolonged low interest rates, high unemployment, weak economic growth, fiscal policy uncertainties, and the threat of contagion from Europe. Moody’s believes that the current state of affairs undermines the U.S. economic recovery and also exposes banks to heightened shock risks.

If you are wondering which banks this pertains to, it is a sector call but you know that this is aimed at the banking giants of Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C); Goldman Sachs Group Inc. (NYSE: GS), J.P. Morgan Chase & Co. (NYSE: JPM), U.S. Bancorp (NYSE: USB), Wells Fargo & Co. (NYSE: WFC), and others.

Here is what else Moody’s had to say: “Macroeconomic challenges trump the fact that Moody’s rating outlooks on most US banks have changed to stable from negative in the past two and a half years, with the common driver being banks’ improved ability to handle risks due to their larger capital and liquidity buffers. In addition, since 2010 most banks have returned to profitability… But US banks remain in recovery mode, which is prone to reversal if the economy takes a turn for the worse. Nonperforming asset levels are still high, and legacy issues from the financial crisis will take years to resolve, with the latter ranging from the rundown of ‘non-core’ assets to litigation issues and mortgage repurchase demands, says Moody’s. Further, many banks still have significant asset concentrations.”  

JON C. OGG