Moody’s Eyes US Bank Downgrade While Crypto Stays Same — For Now

The bond credit rating firm lowered its outlook for all US banks from “stable” to “negative” and put six on watch for potential rating downgrades

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Moody’s Investors Service put the US banking sector on notice amid an ongoing sell-off in US equities spurred by fears of a widespread banking crisis. 

The bond credit rating firm lowered its outlook for all US banks from “stable” to “negative” and put six on watch for potential rating downgrades, including First Republic Bank and UMB Financial. 

Moody’s notes that international contagion is a possibility, especially given the economy’s already precarious situation due to central bank rate decisions. 

“Developing stresses in the US banking system will also weaken investor confidence and heighten funding tensions for European institutions that, as with any bank, by construction combine maturity mismatches with leverage,” Moody’s analysts wrote in the report

“These effects are magnified when rates increase faster than expected, which causes some fixed-rate assets to fall in value and liabilities to start repricing upward more quickly than assets roll off and are replaced.”

While equity markets continue to take a beating, crypto has fared better. Bitcoin (BTC) and ether (ETH) were up about 21% and 14%, respectively, in the past week, as of 1:00 pm, ET. The S&P 500 and Nasdaq Composite indexes have lost 3.4% and 2%, respectively. 

Bitcoin and ether did pare some gains Wednesday with both assets dipping into the red during the afternoon in New York. 

Moody’s has not made any updates to crypto-related bond offerings since the Silicon Valley Bank was taken over by the FDIC. 

In its most recent review of Coinbase, Moody’s downgraded the exchange’s corporate family rating and senior unsecured debt offerings and changed its outlook from “stable” to “under review.” 

“Today’s rating action reflects Coinbase’s substantially weakened revenue and cash flow generation capacity due to the challenging conditions in the crypto asset operating environment characterized by steep declines in crypto asset prices and lower customer trading activity,” Moody’s analysts wrote in mid-January. 

“Moody’s expects the company’s profitability to remain challenged despite its 10 January announcement of a reduction in its global workforce of around 950 employees.”

MicroStrategy, on the other hand, has maintained a stable outlook since June 2021. 

Moody’s has kept an eye on the crypto sector in recent years. Earlier this month, the agency referred to some central bank digital currency efforts, such as those underway in Brazil and the UK, as opportunities to reduce risk and “enhance public money usage.”


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