Standard & Poor’s Rating Services, which is maintaining its negative outlook on the industry, believes that in 2010 the US banking industry will, overall, show pretax profit margins of less than 1%, reflecting a fragile economic recovery, slumping business demand, a moribund housing market, and deteriorating asset quality across various loan categories.

Altogether, we’re forecasting that the U.S. banking industry will see losses of $805 billion to $810 billion for 2008-2010.

“We believe that smaller and regional banks–those most exposed to depressed local economies–will be most likely to succumb eventually to these conditions. Regulators might ultimately nudge many of them into the corporate arms of stronger competitors, as happened to approximately 140 such banks in 2009. But we think it’s unlikely that any major bank (with more than $100 billion in assets) will fail this year.”

S&P estimates that U.S. banks may be only about one-third of the way through the mortgage losses in their portfolios.

“There is also troubling evidence that many of the more recent mortgage delinquencies involve borrowers with traditional conforming loans, as opposed to the riskier subprime and other nontraditional borrowers who the foreclosure crisis overwhelmed initially. Our base-case assumption is that banks ultimately will experience net charge-offs of 3.5% of their mortgage loans and 10% of home equity loans.”

For details see U.S. Banks Are Back From The Brink, But Profits Remain Elusive (Premium)

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