Moody’s Downgrades 10 Smaller Banks With High Commercial Real Estate Exposure


Nearly a dozen smaller banks kicked off the week with bad news from Moody’s Investors Service. The ratings service downgraded 10 small and mid-size banks by one level, including the likes of Commerce Bancshares Inc., M&T Bank Corp., and Pinnacle Financial Partners Inc. Moody’s wasn’t just picking on the little guy, as the firm also placed six banks on review for a potential downgrade, so the likes of U.S. Bancorp, Trust Financial Corp., and The Bank of New York Mellon Corp. have essentially been put on notice. One of the key factors behind the ratings cut for the smaller and mid-size banks was high commercial real estate concentrations. “Elevated CRE exposures are a key risk given sustained high interest rates, structural declines in office demand due to remote work, and a reduction in the availability of CRE credit,” according to the report from Moody’s.

Despite the real estate-related troubles afoot for U.S. Banks, all of which tightened their underwriting standards in the second quarter, the commercial real estate sector didn’t see its stock prices drop as much as the rest of the market today. Leading commercial real estate services firms like JLL and CBRE are bouncing back on the heels of lackluster earnings reports. There’s a certain irony here. If more financial institutions collapse and go the way of Silicon Valley Bank, then it will be the likes of JLL, CBRE, Marcus & Millichap, and other real estate services firms that will be tasked with executing the sale of the failed banks’ real estate loan and real estate portfolios.

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