Moody’s Predicts Continued Banking Woes Through 2010

Moody’s Investors Services predicts that there will be “substantial additional” loan losses by United States banks through the end of next year, which will likely hinder their profits for “extended periods and putting stress on capital levels.”

In a recent WSJ article, Senior credit officer Craig Emrick for Moody’s stated, “We do not believe asset-quality deterioration for the U.S. banking industry has reached its peak, and we therefore anticipate multiple quarters of losses for a large number of rated banks.”

Moody’s new predictions are relatively in-line with what they had predicted in June. Currently, Moody’s estimates that U.S. rated banks will have about $470 billion in loan losses and write-downs between now and the end of 2010. This dollar amount represents about 7.5% of the total dollar amount of outstanding loans in the United States at the end of 2008.

During the first half of 2009, U.S. banks ate a total of $70 billion in net charge-offs, or approximately 1.35% of outstanding loans as of December 31st, 2008.

The losses that Moody’s is expecting is nearly twice what banks had set aside for future loan losses. The larger than expected loan losses have caused 44% of rated banks to be in the red during the second quarter. The firms that were losing money made just 19% of the total loans made by rated banks. Larger lenders were helped during the second quarter by their securities and investment banking units.

Although all flavors of loans have seen increased delinquency rates, commercial real estate has been the worst performer as of recent, lagging behind the declines in residential real estate. According to a Moody’s official, “Commercial real estate has caught up with – and has surpassed by some measures – residential real estate deterioration.” Currently 7.2% of commercial real estate loans are rated as non-performing

Leave a Reply