Who's Next After Fifth Third Downgrade?

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I recently questioned the merits of buying Fifth Third Bancorp(FITB Quote) shares based on the company's exposure to risky loans. Moody's(MDY Quote) confirmed my doubts yesterday when it cut the company's credit rating.

Moody's downgraded Fifth Third two notches from A2 to Baa1, its third-lowest investment grade rating. The credit rating company was concerned that loan losses would strain Fifth Third's capital. Its outlook on the bank is negative, suggesting that further downgrades are possible.

Bank investors might be wondering which banks will be targeted next. US Bancorp(USB Quote), which Moody's recently downgraded, seems like a likely candidate. The credit rating company continues to have a negative outlook on US Bancorp because of its heavy loan holdings, leaving the door open for further downgrades.

More than two-thirds of US Bancorp's assets are loans, compared with less than 50% for bigger rivals Citigroup(C Quote) and Bank of America(BAC Quote).

The Moody's downgrades might serve as a bellwether for the other ratings firms. Standard &Poor's, for example, has been considering cutting the credit ratings of Fifth Third and US Bancorp.

Fifth Third Bancorp has a A-minus rating from S&P, but its negative outlook means a downgrade is possible. US Bancorp has clung to its AA rating since February 2007.

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