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Announcement:

Moody's: U.S. Banking Industry Quarterly Credit Update -- 4Q10

10 Mar 2011

New York, March 10, 2011 -- In its latest quarterly credit update on the U.S. banking industry, Moody's Investors Service said that although rated bank asset quality continues to improve, it is maintaining its negative credit outlook on the system.

"Although loan charge-offs decreased for a fifth consecutive quarter, and non-performers and early-stage delinquencies improved across all major asset classes, asset quality indicators are still very weak by historical standards," said Vice President Joseph Pucella.

Moody's expects a slow and uneven return to normal credit conditions over the next twelve months. While the likelihood of another downturn in the global economy has diminished, further deterioration could take a heavy toll on U.S. bank asset quality and therefore ratings, absent mitigating actions to bolster capital.

"We estimate that rated U.S. banks have now recognized about three-fourths of their crisis-related loan charge-offs," Pucella said. "And though sizeable, remaining losses are certainly manageable in the context of banks' pre-provision income and the reserves they have built over the past couple of years."

The report discusses the fundamental credit conditions of the U.S. banking industry, as well as the actual loss experience for rated U.S. banks through the fourth quarter of 2010 in comparison to Moody's loss estimates.

Report highlights:

-- Loan charge-offs have decreased on an aggregate basis for five consecutive quarters and were 2.6% of loans in the fourth quarter, the lowest level since the fourth quarter of 2008, but still near historic highs. All major asset classes showed improvement in charge-offs during the fourth quarter.

-- Non-performing loans were approximately 4.2% of loans at December 31, 2010, the lowest level since March 2009.

-- Moody's estimates that rated U.S. banks will incur $744 billion of loan charge-offs between 2008 and 2011. We estimate $548 billion of these losses have been recognized, leaving $198 billion, or 27%, remaining. On an asset class basis, Moody's estimates 77% of residential mortgage losses have been taken versus 58% for commercial real estate.

-- The rated U.S. banks' loan loss allowance stood at $193 billion (3.7% of loans) and tangible common equity was $638 billion at December 31, 2010.

-- We have incorporated our expected loss estimates into our views of banks' capital adequacy and our ratings. However, our rating outlooks, about half of which remain negative, are influenced by the potential for a worse-than-expected macroeconomic environment. More severe macroeconomic developments, the probability of which we place at 10% to 20%, would significantly strain U.S. bank fundamental credit quality.

The report is titled "U.S. Banking Industry Quarterly Credit Update -- 4Q10" and is available on Moodys.com.

New York
Joseph Pucella
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Young
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: U.S. Banking Industry Quarterly Credit Update -- 4Q10
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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