Standard & Poor's ("S&P") Ratings Services, part of McGraw Hill Financial MHFI has downgraded the credit ratings of four U.S. regional banks by one level due to their huge exposure to energy loans. Notably, credit quality of such loans has worsened following the consistent decline in oil prices , which led to the downgrade in rating.
For BOK Financial and Comerica, S&P's long-term issuer rating was cut from A- to BBB+, while Cullen/Frost Bankers was downgraded by one notch to A- from A. Further, Texas Capital was lowered to BB+ from BBB-.
Moreover, S&P changed its ratings outlook to negative for these banks. Further, BBVA Compass Bancshares' outlook was also revised to negative from stable.
Following the tumult in oil prices since 2014, banks with high loan exposure to oil and gas companies across the United States have been affected. Notably, banks in states like Texas and Oklahoma have been impacted more as their loans are concerted to economies, which are more exposed to oil price declines.
Moreover, S&P expects increases in loan losses of the U.S. regional banks over the next two years, despite a slight rebound in energy prices from the current level.
Downgrade in the ratings by S&P of banks will lower investors' confidence in the stocks, though it might prepare the firms to better tackle oil price reduction. Moreover, it might increase funding costs, thereby leading to higher expenses impacting the banks' financials further.
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