S&P Makes Good On Most Of Bank Downgrade Promise

Standard & Poor’s cut the credit ratings of 18 banks, citing further weakening in the financial sector, after it said last month that 23 banks have a 50% chance of being downgraded within 90 days.

Among the banks that saw their ratings cut by S&P were BB&T Corp. (BBT), Wells Fargo & Co. (WFC) and U.S. Bancorp (USB). Of these banks, two have paid off their obligations under the Troubled Asset Relief Program: BB&T and U.S. Bancorp.

The changes in S&P’s ratings on the banks reflect the ratings agency’s assessment that the financial sector will remain unstable and will likely face tighter regulatory oversight. Loan losses that have plagued the industry for more than a year will likely continue to increase and could grow beyond expectations, S&P said in a report on its Web site.

“We believe the banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions,” said S&P credit analyst Rodrigo Quintanilla. “Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace’s new reality. Such a transition period justifies lower ratings as industry players implement changes.”

The ratings of Carolina First Bank, Citizens Republic Bancorp Inc. (CRBC), Huntington Bancshares Inc. (HBAN), Synovus Financial Corp. (SNV) and Whitney Holding Corp. (WTNY) were cut to junk status from investment-grade levels.

Money Morning Contributing Editor Martin Hutchinson in February ranked BB&T and U.S. Bancorp as two of his “hidden gems” among the top 12 banks in the U.S. “BB&T is better capitalized and has continued to make money throughout the downturn,” Hutchinson said.

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