US Banks next??
NEW YORK, Sept 3 - Citing reported losses by the largest U.S. banks resulting from recent market turmoil in Russia, Standard &
Poor's announced today that it views these losses as manageable and does not anticipate further losses from remaining Russian
exposure.
Because the effects of the crises seem to be widening, Standard & Poor's is closely monitoring the market volatility in Latin
America, particularly Brazil, Argentina, and Venezuela, and how that might affect U.S. banks.
''It is clear that the ripple effect of the successive crises in emerging markets is widening,'' says Tanya Azarchs, a director in Standard & Poor's Financial Institutions
Ratings group. ''However, the crises, as well as the general slackness in high yield markets, will be most felt by those banks that are most focused on those particular
market segments,'' Ms. Azarchs adds.
The only rating change Standard & Poor's is considering based on recent turmoil is that of Bankers Trust Corp., which was placed on CreditWatch with negative
implications yesterday. Recent weakness in the high yield market could affect Bankers Trust's corporate finance earnings which had been driving the bank's growth.
''The loan quality issues presented by the emerging market crises have yet to run their course,'' Ms. Azarchs adds. ''Banks have dramatically reduced their exposure to
the countries that are refinancing in Asia. Yet the loss content of the original exposure probably is not reduced proportionally, as it is the better credits that have been
able to pay out their obligations, leaving the hard core problems in place.''
Standard & Poor's recently estimated that the exposure of U.S. banks to the crisis in Asia totaled $4 billion, or 15% of an original exposure of $27 billion. Standard &
Poor's has not increased that loss estimate and believes that current rating levels are appropriate. However, as more countries become engulfed by the spreading crises,
bank loan exposure will obviously grow, and Standard & Poor's will review bank ratings accordingly.
Furthermore, as the spreading crises affect more important trading partners, analysts are closely watching what effect this might have on the U.S. economy.
''Whatever the outcome in Latin America, there is sufficient evidence that the credit cycle for U.S. banks has turned,'' Ms. Azarchs adds. ''It turned first for those
banks with international exposure. It has also turned for those with exposure to high risk domestic sectors such as subprime lending.
Competitive conditions in the high risk sectors, such as high yield corporate lending and real estate related lending are such that one can expect problems will begin to
surface there as well,'' Ms. Azarchs adds. Viewed in combination with lower income potential from market related sources of income (such as private equity and
underwriting) the outlook is for bank profitability to be significantly off of its highs of recent years.
Ratings for U.S. banks are generally at sufficiently conservative levels to discount declining profitability. However, should the credit cycle accelerate rapidly such that
losses begin to erode capital, downgrades could become a possibility, Standard & Poor's said.
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