(News Bulletin 247) – An analyst from the rating agency told CNBC that it could be forced to reassess and lower the ratings of US institutions. Shares of US banks ended sharply lower on Tuesday night.

The banking sector experienced a decidedly difficult month of August. If the financial results of the major establishments, in particular the three listed French banks (BNP Paribas, Crédit Agricole SA and Société Générale) satisfied investors, a series of events subsequently shook their shares.

Last week Italy seized up the market in Europe by announcing a surcharge on banking “superprofits” before putting its impact into perspective. On the side of the United States it was Moody’s which had cast a chill by downgrading the ratings of several small and medium-sized establishments. The rating agency then worried about the rise in the sector’s financing costs and the erosion of net interest margins, as establishments had to pay more for savers’ deposits.

New episode on Tuesday, with a warning to the United States this time from Fitch, which had also downgraded the United States at the beginning of the month by withdrawing the precious “AAA” from them.

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A degradation that is likely to happen

Chris Wolfe, an analyst with the ratings agency, reminded CNBC that Fitch in June lowered its assessment of the operating environment for US banks, downgrading the score (not the rating) for that environment from ” yy” to “yy-“. This movement had then gone unnoticed because it had not led to a decision by the agency on the ratings of the banks.

But if conditions deteriorate, for example if interest rates remain high longer than expected, the agency could be forced to lower this “score” by another notch to “a+”.

Problem: The top-rated major US banks, such as JPMorgan and Bank of America, have a credit rating of “AA-” and would thus end up with a rating higher than this “score”. However, it is theoretically not possible for banks to have a better rating than the environment in which they operate. So a drop in this “score” to “a+” would potentially trigger a downgrade in the credit rating of banks like JPMorgan and Bank of America.

“If we were to upgrade it to a+, it would recalibrate all of our financial metrics and likely result in negative rating actions,” Chris Wolfe said.

In turn, Fitch should then examine all of the 70 or so American financial institutions that it rates to see if they should then see their ratings also downgraded by one notch, in order to maintain the gap with the best-rated banks.

Wall Street penalized

In other words, there is a real risk that Fitch will lower the credit ratings of all of the 70 establishments it covers. This is not guaranteed, however, with Chris Wolfe stating that the “score” of the operating environment for US banks may very well remain at “aa-” for “the next ten years”.

This warning weighed on the shares of American banks explaining at least in part the declines they suffered on Tuesday evening, JPMorgan dropping 2.6% at the close and Bank of America 3.2%. The KBW Nasdaq Bank Index dropped 2.8%.

“Wall Street ended in a sea of ​​red amid broad-based price declines as Fitch’s warning of a possible downgrade of major US banks weighed on market sentiment,” said CMC’s Tina Teng. Markets.

For their part, this Wednesday, European banks fell a little at the end of the morning, but without recording worrying declines. BNP Paribas and Societe Generale dropped 0.3% and 0.4% while in Frankfurt, Deutsche Bank lost 0.6%.