Commercial Real Estate Risk Remains Key Concern for US Banking Sector
Fitch’s rating outlook for the U.S. banking sector remains negative, although many of the factors that put negative pressure on ratings are easing. We are pleased to offer a complimentary download of Fitch’s latest US Banking Quarterly, which includes individual comments on the top 24 banks rated by Fitch.
Fitch’s negative outlook is focused mainly on the regional banks, where a large portion of U.S. Fitch-rated institutions remain with a Negative Outlook or on Negative Watch. Fundamental financial performance for the banking sector will remain generally weak throughout most of 2010, although this will not likely result in broad downgrades. For the larger U.S. banking institutions, the credit outlooks on long-term Issuer Default Ratings (IDRs) remain generally Stable.
There are some notable exceptions to the negative rating outlook among regional banks including U.S. Bancorp (USB), PNC Financial Services (PNC) and New York Community Bank (NYB). These three banks carry stable rating outlooks owing to better than average asset quality and a comparatively healthier financial outlook.
Generally, the regional banks are more susceptible to further downgrades than the larger institutions, given their concentration in traditional lending activities and greater exposure to commercial real estate (CRE) losses. Fitch continues to view CRE risk as a key area of concern for the U.S. banking sector.
Despite some signs of stability, Fitch remains cautious in its outlook for 2010. High levels of losses from consumer-related exposures (particularly mortgages, home equity loans and credit cards) likely will persist well into the current year. In addition, CRE exposure will likely necessitate considerable incremental charges in 2010. On a cumulative basis, CRE losses now stand at $25 billion since the beginning of 2008 for the banks included in Fitch’s latest U.S. Banking Quarterly report. Given their lagging effect, Fitch anticipates that CRE losses will continue to trend higher throughout 2010. These factors will pressure earnings well into the current year and potentially in 2011.
The full 40-page report, U.S. Banking Quarterly 4Q09 has been made available free of charge to Research Recap users for 30 days by special arrangement with Fitch Ratings, an Alacra content partner. After 30 days, the report will revert to its regular AlacraStore price of $275.
Also available from Fitch: 3Q09 Bank Capital Ratios (Premium)
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