Troubled waters for regional banks

Standard & Poor's downgrades two regional banks, and warns of potential for more of the same at eight others.

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By Kenneth Musante, CNNMoney.com staff writer

Sick of the 'R' word
With oil and gas prices falling:
  • I'll begin to drive more again
  • I'll continue to conserve gas
  • I won't change my driving habits

NEW YORK (CNNMoney.com) -- Mortgage-related problems continued to hammer regional banks, according to a report released Wednesday.

Credit rating agency Standard & Poor's downgraded two regional banks and said it could downgrade eight more in the near future after a review of their respective portfolios. In all, 37% of regional banks could see further downgrades, S&P said.

S&P lowered its credit rating on National City Corp. (NCC, Fortune 500) to A- from A and the rating of First Horizon National Corp. (FHN) to BBB from BBB+.

Lower ratings make it more expensive for banks to borrow money since loans to these institutions are considered to carry a higher risk.

National City's holdings include a large concentration of mortgage and housing-related investments that could continue to deteriorate over the next few quarters, according to S&P.

The Tennessee-based First Horizon was downgraded on problems related to a decline in the credit market, particularly at its retail banking arm. But the bank's move to scale back its operations could help it regain its footing, S&P said.

Meanwhile S&P said that Fifth Third Bancorp (FITB, Fortune 500) could face a credit rating downgrade because of its heavy investments in the sour Florida real estate market.

The decline in Florida home values also presents a large risk to the rating of Regions Financial Corp. (RF, Fortune 500) Last week it acquired $974 million in deposits from Integrity Bank, which failed and was taken over by the Federal Deposit Insurance Corporation.

S&P affirmed its current rating of A+ for Regions, but cautioned that the bank doesn't have much of a cushion against further losses.

Integrity Bank was the 10th regional bank to fail this year, and there has been growing concern for the health of the regional banking system, as well as the funding available to the FDIC to insure customers' savings.

The rating agency also warned of potential downgrades at Citizens Republic Bancorp Inc. (CRBC), Comerica Inc. (CMA), Synovus Financial Corp. (SNV), Wilmington Trust Corp. (WL), Zions Bancorp. (ZION), and Colonial BancGroup Inc. (CNBTo top of page

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