Credit downgrade reaction from local bankers

Credit rating agency Fitch downgraded the nation's credit rating Aug. 1, marking only the second drop in U.S. history, but Cape Girardeau bankers interviewed by the Southeast Missourian do not appear overly concerned.

New York City-based Fitch is one of the so-called "Big Three" credit agencies; the others are Moody's and Standard & Poor's.

An unnamed Fitch director cited an "erosion of governance" for the downgrade from a AAA rating to AA+, noting former President Donald Trump's efforts to overturn the 2020 election and resulting political polarization.

Wade BartelsAlliance Bank

Wade BartelsAlliance Bank

"I find the timing of the downgrade interesting considering the (nation's) debt ceiling was recently raised," said Wade Bartels, president/CEO of Alliance Bank.

"I do not see this move substantially impacting the financial community or customers. The response so far from bond and equity markets has been muted."

Robbie GuardMRV Banks

Robbie GuardMRV Banks

Robbie Guard, senior vice president and market president with MRV Banks, held a similar view.

"I feel there will be little impact and most will dismiss (Fitch's) action overall. I see it as a non-event, especially with the labor market being so strong," Guard said.

Phil MooreBanterra Bank

Phil MooreBanterra Bank

Phil Moore, market executive with Banterra Bank, expressed a more serious concern.

"I cannot argue with (Fitch's) action. The level of debt to GNP is at historic highs and will negatively impact interest rates and will limit the government's ability to deal with future crises. It's likely the move will mean higher taxes and slower economic growth," he said.

Guard said he and his peers have greater concerns at the moment.

"We have larger issues facing bank customers when a car loan could be over 8%. The last time the prime rate was 8.5% was more than two decades ago in February 2001," said Guard, who is Fourth Ward Cape Girardeau city councilman.

Clint KarnesWood & Huston

Clint KarnesWood & Huston

"I'm honestly not surprised (and) the general economic and political conditions in our country continue to show little improvement," opined Clint Karnes, Wood & Huston's community bank president.

"Pandemic spending did nothing to help our national debt and I believe (Fitch) is trying to get the attention of both political parties with this move. Most consumers will not see any immediate effects from the downgrade but it might be reason for pause when it comes to major purchases and larger discretionary spending."

Before Aug. 1, the last time the nation's credit was downgraded since the founding of the American republic was in 2011, when Standard & Poor's cut its AAA rating citing a dispute between Republicans and then-President Barack Obama over the federal budget.

Of note

Fitch is forecasting the U.S. economy will go into recession in the last quarter of 2023.

Others now predict the U.S. will escape recession, despite the Federal Reserve's decision to aggressively raise interest rates in order to tamp down inflation.

In late July, Fed chairman Jerome Powell said his staff were no longer forecasting a recession.

On Wednesday, Aug. 2, Bank of America became the first major bank to drop its forecast for a recession this year.

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