Less Than Half of 2008-11 CRE Losses Written Off by US Banks
While U.S. bank asset quality issues are past the peak, charge-offs and non-performing loans remain near historic highs with commercial real estate assets held by regional banks the area of most concern, according to Moody’s latest assessment.
“We believe rated U.S. banks have recognized approximately 60% of the aggregate loan charge-offs that they will realize from 2008 to 2011,” said Moody’s Senior Vice President Craig Emrick. “Although remaining losses are sizable, they are beginning to look manageable in relation to bank’s loan loss allowances and tangible common equity.” However, a worsening of the global economy in 2010, the probability of which Moody’s places at 10% to 20%, would significantly strain U.S. bank fundamental credit quality.
In aggregate, the banks have recognized 60% of Moody’s estimated total charge-offs and 65% of estimated residential mortgage losses, but only 45% of estimated commercial real estate losses.
- Aggregate annualized net charge-offs came to 3.3% of loans in Q110 (versus 3.6% of loans for Q409 annualized). Despite two consecutive quarters of improvement in charge-offs, they remain near historic highs dating back to the Great Depression.
- The decline in aggregate charge-offs was driven by commercial real estate (CRE) improvement which we believe is likely to reverse in coming quarters. A similar commercial real estate decline was experienced in the first quarter of 2009 before charge-offs accelerated through the rest of the year.
- Non-performing loans remained at 5.0% of loans at March 31, 2010.
- U.S. rated banks have already charged off or written-down $436 billion of loans in 2008, 2009 and Q110, leaving $307 billion to reach our full estimate of $744 billion of loan charge-offs in 2008 through 2011.
- The US banks’ allowances for loan losses stood at $221 billion as of March 31, 2010, which is equal to 4.1% of loans. Although this can be used to offset a sizable portion of remaining charge-offs, banks will still require substantial provisions in 2010.
For the Big 4 Banks (Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo), Moody’s estimates that the bulk of the remaining losses will come from residential mortgages and credit cards. On the other hand, for the other 10 banks that participated in the Supervisory Capital Assessment Program (PNC, US Bank, Bank of New York Mellon, SunTrust, BB&T, Capital One, State Street, Fifth Third, KeyCorp, and Regions), and other rated U.S. Banks, Moody’s expects a sizable amount of the remaining losses to come from CRE as these banks have more exposure.
For details, see U.S. Rated Bank Asset Quality Over the Peak, Lookout for a Bumpy Downhill Ride.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
