Fitch warns of possible bank downgrades

A Fitch Ratings analyst warned of possible downgrades on dozens of U.S. banks including JPMorgan Chase, if the agency continues to cut its assessment of the industry’s health. 

In an exclusive interview with CNBC’s Hugh Son, Fitch Rating analyst Chris Wolfe said when the rating agency lowered its “operating environment score” for U.S. banks from a “AA” to “AA-“ in June, it went largely unnoticed because it did not prompt downgrades on banks. 

In Fitch’s commentary on the lowered score in June — which Wolfe was the lead author for — the rating agency cited a downward pressure on the U.S. credit rating, regulatory framework gaps and uncertainty about interest rates.

Wolfe told CNBC on Tuesday that if Fitch downgrades one more notch of the industry’s score, from “AA-“ to “A+”, the agency would be forced to reevaluate ratings on each of the more than 70 U.S. banks it covers. 

“If we were to move it to ‘A+,’ then that would recalibrate all our financial measures and would probably translate into negative rating actions,” Wolfe told CNBC. 

If downgraded to a score of “A+,” CNBC reported the industry’s score would be lower than some of its top-rated lenders, such as JPMorgan and Bank of America. Wolfe said if institutions like JPMorgan are cut, Fitch would have to at least consider downgrades on their peers’ ratings, which could push weaker lenders towards non-investment grade status. 

Wolfe said Fitch intends to signal that bank downgrades are a real risk, though not a foregone conclusion. He told CNBC he did not want to speculate on the timing of when these downgrades could happen or exactly what it would mean for lower-rated firms. 

Wolfe’s comments follow recent downgrades from credit rating firms that have disrupted markets. Last week, Moody’s Investors Services downgraded 10 U.S. banks and placed multiple major lenders including Truist Financial, Bank of New York Mellon, U.S. Bancorp, State Street, Northern Trust Corporation, Cullen/Frost Bankers, under review for a potential downgrade. The firm also changed its outlook to negative for 11 banks. 

Earlier this month, Fitch Ratings downgraded the credit rating of the U.S. of “AAA” to “AA+,” citing the nation’s growing debt and continued partisan standoffs over the debt limit. Fitch Ratings said these political standoffs have prompted spiraling national debt and a lack of confidence in the U.S. government to manage it. JPMorgan Chase CEO Jamie Dimon told CNBC the downgrade is “ridiculous,” but noted it “doesn’t really matter that much.”