US finance companies on the mend, except for CRE sector
Early signs of stabilization are emerging for U.S. finance companies–with one significant exception: commercial real estate, according to Standard & Poor’s latest Industry Report Card.
“Among the areas experiencing stabilizing trends are consumer finance asset quality, the credit markets–specifically for unsecured and asset-backed securities (ABS), and the performance of certain business development companies (BDCs). On the downside, the commercial real estate (CRE) sector continued its slide, which we expect will only worsen.”
“Consumer finance asset quality showed early signs of stabilizing during the third quarter. Early-stage delinquencies declined from the previous quarter for rated credit card issuers, hinting that asset quality deterioration may finally stabilize over the next several quarters. For captive auto financiers, such as General Motors Acceptance Corp., increased volumes due to the “cash-for-clunkers” program, industry-wide strength in used car prices, and stabilizing credit supported more-favorable results.
“Despite these nascent signs of consumer credit steadying, we believe that significant near-term challenges remain. Unemployment is currently above 10% and we expect it may rise further in 2010. Consumer spending remains tepid at best. In addition, the seasonally weak fourth quarter may see deterioration in firms’ credit metrics, especially for consumer finance companies that cater to subprime borrowers.”
CRE was markedly weak during the quarter–funding markets remained essentially frozen, with limited opportunities for borrowers seeking to roll over or obtain new funding.
“Nonperforming loans continued to build due to these limited refinancing options, leading to net losses and necessitating outsized loss provisions. We expect these trends to intensify as soft residential housing markets and rising unemployment put pressure on a wide spectrum of CRE asset types, including loans backed by condominium, land development, retail, hotel, and office properties.”
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