Moody's: banks to write off another $286 billion in loans through 2011
Moody's Investors Service expects continued trouble in the domestic banking industry with another $286 billion of loan losses yet to hit the books. Earlier this week, analysts said U.S. banks rated by Moody's have incurred $476 billion of charge offs since 2008. Still, Moody's said the losses are "beginning to look manageable in relation to the banks loan loss allowance of $213 billion and tangible common equity of $601 billion" at June 30. "Bank asset quality issues are past the peak," Moody's analysts wrote in a special report on the industry. In its most-recent quarterly banking profile, the Federal Deposit Insurance Corp. said loan losses increased for a 13th consecutive quarter for the second quarter ended June 30. Charge offs rose 38.4% to $52.4 billion from a year earlier, hurt most by credit card losses, according to the FDIC. Moody's projects a "sluggish economic recovery for the remainder of 2010 with persistent high unemployment and headwinds from significant sovereign budget deficits." And even further economic deterioration would "likely result in significant U.S. bank downgrades absent mitigating actions to bolster capital." "More specifically, we have assumed an economic downturn in 2010 could result in an additional $322 billion of loan losses for U.S rated banks, over and above the $744 billion in 2008 to 2011 already expected," the analysts said. "We believe two-thirds of these losses would come from residential real estate. Such a downturn would take a heavy toll on U.S. bank asset quality." Analysts said loan charge offs decreased for three-consecutive quarters and, at 3% for the second quarter, are at the lowest rate since the first quarter of 2009. "Despite the improvement in residential mortgages the recovery in home prices remains feeble and there is considerable risk that these trends could turn negative again," according to Moody's. Write to Jason Philyaw.