Moody's : Loan Losses on U.S Banks

Moody’s Investors Service says that both the U.S. banking industry rating outlook and the industry’s broader fundamental credit outlook continue to be negative because of the recession.

In a new report, Moody’s indictaes that it expects rated U.S. banks will incur a total of approximately US$470 billion (pre-tax) of loan losses and writedowns in 2009 and 2010. The vast majority of this estimated loss, US$415 billion worth relates to expected loan losses, which represents 8% of the industry’s outstanding loans at the end of last year.

As a result of these substantial asset quality problems and the need to build reserves, many U.S. banks will be unprofitable in 2009, placing considerable strain on their capital levels, the rating agency believes. Moody’s notes that, despite heightened provisioning over the past several quarters, banks’ coverage of bad loans continues to drop; the ratio of allowance for loan losses to non-performing loans stood at 70% at March 31, versus 100% in the first quarter of 2008. Full Story