U.S. Banks Log Profits, but Credit Quality a Concern
Bank of America is the latest U.S. banking giant to report a first quarter profit, but CEO Ken Lewis warns the improvement doesn’t mean an end to economic challenges.
We understand that we continue to face extremely difficult challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment.
B of A’s provision for credit losses more than doubled to $13.38 billion in the first quarter from a year ago. The bank’s nonperforming assets at March 31 more than tripled to $25.74 billion from the 2008 first quarter.
Just as consumers and businesses become less credit-worthy, banks are under increasing pressure to lend.
A Wall Street Journal analysis of the U.S. Treasury’s bank lending figures shows a sharp drop in new loan originations. This news is unlikely to sit well with American taxpayers, who are footing the bill for bank bailouts in the worst economic crisis since the Great Depression.
In its Weekly Credit Outlook, analysts at Moody’s Investors Service point to another worry – broad banking powers being sought by the Obama Administration to restructure banks and financial institutions in a crisis.
The ratings agency writes that debt ratings of banks and financial institutions could be pressured lower if Congress grants wider powers.
To the extent the proposal is enacted and depending upon the details, such legislation could put greater pressure on some — or all — of the debt ratings of any systemically important U.S. financial institution that currently benefits from uplift from its intrinsic stand-alone rating.
The upshot: the final chapter has not yet been written on the credit crisis and as a result, U.S. banks face more uncertainty.
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