Big banks' risk scores hold steady; debt costs rise; default risk ticks up
Sarah Cottle
Growth-Focused Executive | GM | Driving Profitability & Operational Excellence in B2B Data, Research, Advisory | M&A Integration | Governance | Digital Transformation | Trusted C-Suite Advisor | Board Member
Today is Tuesday, July 11, 2023, and here’s your weekly selection of essential intelligence on financial markets and the global economy from S&P Global Market Intelligence. Subscribe to be notified of each new Insight Weekly.
In this edition of?Insight Weekly, we take a close look at the latest risk scores for the eight US global systemically important banks (G-SIBs). Risk scores, which determine capital surcharges, increased sequentially in the first quarter, but not by enough to push most of the banks into a higher capital surcharge bucket, according to S&P Global Market Intelligence data. Regulators have been considering capital changes for the largest banks, and the recent failures of three regional banks have expanded the universe of banks they will target. Potential changes could require some regional banks to raise more capital and reduce banks' ability to return capital to shareholders through share buybacks and dividends.
US companies are finding it ever more difficult to cover the cost of their debt repayments. Rising interest rates have pushed up borrowing costs for companies across the board. The median interest coverage ratio of companies rated investment-grade by S&P Global Ratings sank to 6.38 in the first quarter from 7.06 in the previous quarter, S&P Global Market Intelligence data shows. The ratio — a closely watched measure of solvency calculated by dividing earnings before interest and tax by the cost of a company's debt-interest payments — has slumped sharply since a peak of 8.97 in 2022.
Default risk for the S&P 500 ticked slightly higher approaching the end of the second quarter from the first three months of the year as stock markets have rallied and first-quarter corporate earnings broadly fell year over year. The median probability of default for S&P 500 companies was 3.91% as of June 28, up from 3.84% on March 31, according to S&P Global Market Intelligence's Risk Gauge model. The scores represent the median odds of default on debt within a year, based on financial reports and the volatility of share prices for public companies in the index, accounting for country- and industry-related risks and other macroeconomic factors.
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Bank Capital Metrics in Focus
G-SIB surcharges stabilize at big US banks as other capital increases loom
The largest and most complex US banks have had success in slowing increases in regulatory risk scores, which held fairly steady for most global systemically important banks in the first quarter of 2023.
—Read the full article from S&P Global Market Intelligence
Some banks to see higher capital requirements after Fed stress tests
Citibank, Capital One Financial and Citizens Financial Group are likely to see higher common equity Tier 1 requirements based on the results of their stress tests, according to analysts.
—Read the full article from S&P Global Market Intelligence
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Deep Dives
In-depth features looking at the impact of major news developments in key industries.
Financials
Bank regulators give more adverse Community Reinvestment Act ratings this year
Regulatory compliance issues, such as those related to the Community Reinvestment Act, are slowing down bank M&A approval processes and sometimes preventing them from closing altogether.
—Read the full article from S&P Global Market Intelligence
Deutsche Bank, UBS take biggest capital hit in Fed stress tests
Big European banks showed disproportionately high core capital drawdowns in the Federal Reserve's severely adverse scenario, despite holding some of the highest capital ratios among all tested lenders.
—Read the full article from S&P Global Market Intelligence
Street Talk: Bank investors can find diamonds in the rough amid funding pressures
In the latest Street Talk podcast, Josh Siegel, chairman and CEO of StoneCastle Partners, discussed how funding pressures are diverging among banks of different sizes, potential regulatory changes and the risk posed by commercial real estate.
—Read the full article from S&P Global Market Intelligence
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Insurance
Liberty Mutual, Auto-Owners lead US commercial auto premium growth in Q1
Only four of the largest 10 US commercial auto insurers saw a year-over-year decline in direct premiums written during the first quarter.
—Read the full article from S&P Global Market Intelligence
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Real Estate
Most homebuilders set to log higher Q2 2023 home sales; price recovery continues
US homebuilders are projected to report a 3.7% increase in home sales for the second quarter compared to the preceding quarter, according to S&P Global Market Intelligence data.
—Read the full article from S&P Global Market Intelligence
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Credit and Markets
Cost of debt repayments a rising burden for US companies
Operating metrics of US companies rated by S&P Global Ratings are weakening amid rising interest rates and a flagging economy.
—Read the full article from S&P Global Market Intelligence
Default risk broadly ticks up for S&P 500 companies at end of June
S&P Global Market Intelligence's Risk Gauge model shows elevated probabilities of default across several sectors in the index.
—Read the full article from S&P Global Market Intelligence
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Energy and Utilities
Energy communities reel in $15B in US funds, with another $700B available
The investments in nuclear, green hydrogen, battery and other projects are part of President Joe Biden's bid to build an on-ramp to the clean energy transition for communities with economies historically tied to fossil fuel industries.
—Read the full article from S&P Global Market Intelligence
Lucrative tax credits not enough to win support for carbon capture in US Midwest
The burgeoning CO2 pipeline development is uniting unlikely allies as federal incentives for carbon capture and storage have bestowed Midwestern ethanol plants with a new source of revenue.
—Read the full article from S&P Global Market Intelligence
Gas utility stocks slumped in Q2 as investors chase growth
A rally in the gas utility subsector came to an end as equity investors pursued opportunities in mega cap stocks and as bond market trends continued to work against gas distributors and other utilities.
—Read the full article from S&P Global Market Intelligence
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Technology, Media and Telecommunications
451 Research: Augmented World Expo hits 14th year as the XR and metaverse industry rolls on
Augmented World Expo attendees encountered AI owls and award-winning sci-fi authors, plus exhibits by 250 companies in the spatial computing/metaverse industry.
—Read the full article from S&P Global Market Intelligence
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Metals and Mining
Mining looks to AI for edge in finding new metal
Artificial intelligence's tentacles are spreading across the exploration industry as companies try to find more metal amid projections of soaring demand due to the energy transition.
—Read the full article from S&P Global Market Intelligence
Metals and Mining Research: Lithium and Cobalt CBS June 2023 – Lithium prices converge, cobalt price up
Lithium and cobalt prices are range-bound as sellers hold offer prices firm in anticipation of strengthening demand while the battery downstream resists higher costs.
—Read the full article from S&P Global Market Intelligence
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Supply Chain
Returning service: Tennis ball supply chains
The All England Lawn Tennis Club World Championships, aka Wimbledon, uses 55,000 tennis balls per year and draws annual attention to the sport. Like many leisure activities, tennis products experienced supply chain disruptions during the past three years.
—Read the full article from S&P Global Market Intelligence
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The Week in M&A
Root hits out at Embedded buyout offer despite hefty price premium
Duke Energy to sell commercial distributed generation business to ArcLight
Latest takeover bid for American Equity seems 'different' this time
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The Big Number
Trending
—Read more on S&P Global Market Intelligence and follow @SPGCIEnergy on Twitter.
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Compiled by Deavelle Sauva