Fitch says Improvement in US Banks May be Fleeting
The financial improvement experienced by the U.S. banking industry, demonstrated during first quarter 2009 (1Q’09) results, will be difficult to maintain as credit losses are likely to mount, according to Fitch Ratings’ quarterly report of the industry.
“Credit losses at major banks continue to rise while strength from market-dependent revenues such as mortgage origination and fixed income trading are not likely to persist. Furthermore, net interest margins have become increasingly constrained by rising levels of non-performing assets and a lack of willingness and ability to fully pass lower market rates to core deposits.”
The financial institutions covered in Fitch’s review demonstrated a remarkable turnaround with a combined reported net income of $8.9 billion during 1Q’09 compared to $33.3 billion in losses during 4Q’08. Resurgence in mortgage refinancing activity as a result of historically low interest rates was responsible for much of this improvement. It appears that the industry is poised for another strong quarter in mortgage originations, although revenues from this business are presently expected to slow, possibly materially, in the second half of 2009.
The Negative Outlook on U.S. bank ratings reflects Fitch’s concerns that banks continue to face ongoing material challenges, and the potential for further rating downgrades.
Fitch expects that banks will exhibit continued increases in loan delinquencies, non-performing assets and, in many cases, net-charge offs for at least several quarters as the economic outlook remains uncertain.
For details see U.S. Banking Quarterly 1Q09.
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