The long-term debt ratings of Old National Bancorp and a number of other U.S. regional banks are being looked at by Moody’s Ratings for possible downgrade because of worries about their exposure to commercial real estate.
The following banks were all affected by the news from Moody’s on Thursday: WaFd WAFD, -0.47%; Peapack-Gladstone Financial PGC, -1.03%; F.N.B. FNB, +0.30%; Old National Bancorp ONB, -0.30%; First Merchants FRME, +0.66%; and Fulton Financial FULT, +0.30%.
As a regional bank with a large concentration in commercial real estate (CRE) loans, it faces ongoing asset quality and profitability pressures as higher-for-longer interest rates heighten the longstanding risks of CRE for banks’ creditworthiness especially during cycle downturns. This is why Moody’s analysts warned of a downgrade for all of those lenders.
As the years of low interest rates in the U.S. ended and the Federal Reserve began to raise rates in 2022, the analysts said, “many regional banks chose to build and maintain meaningful concentrations in CRE, which is a volatile asset class.”
Moody’s broke down each bank’s exposure. For example, it said that CRE made up 479% of Peapack-Gladstone’s tangible common equity as of March 31, while it only made up 279% of Old National’s.
Moody’s warned about certain banks, but their stocks were not trading before the market opened on Friday.