U.S.-listed exchange-traded funds that buy bank stocks fell on Tuesday, after Moody’s Investors Service late said it put a handful of major U.S. banks on review for a possible downgrade and lowered debt ratings on several small and midsize banks.
The SPDR S&P Regional Banking ETF KRE, which tracks an equal-weighted index of U.S. regional bank stocks, fell 3.2% on Tuesday, on pace for its biggest one-day percentage drop since May 4, while the Invesco KBW Regional Banking ETF KBWR was off 3.8%, on track for its largest percentage decrease since May 2, according to Dow Jones Market Data.
In a statement released late Monday, Moody’s said the U.S. banking industry, rattled in March by the sudden collapse of Silicon Valley Bank and other regional lenders, “continues to contend with interest rate and [asset and liability management] risks with implications for liquidity and capital.”
“Many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital,“ the credit-ratings firm said. Meanwhile, a “mild recession looms and asset quality looks set to decline” particularly in some banks’ commercial real-estate portfolio.
Shares of M&T Bank Corp. MTB,
Moody’s put U.S. Bancorp USB,
Other bank shares also broadly underperformed the three major stock averages on Tuesday. Big banks such as Bank of America Corp. BAC,
U.S. stocks traded broadly lower on Tuesday with the S&P 500 index SPX down 1.1% after getting a short respite from last week’s selloff on Monday. The Dow Jones Industrial Average DJIA dropped 357 points, or 1%, to 35,113, and the Nasdaq Composite COMP fell 1.3%, according to FactSet data.