Kroll Bond Rating Agency Releases Research Report: Credit Outlook: Is it 2005 All Over Again in the U.S. Banking Sector?

NEW YORK--()--Kroll Bond Rating Agency (KBRA) releases a research report covering the credit outlook in the U.S. Banking sector. The report will make the following key points:

  • Based upon our review of aggregate financial statement and portfolio level data published by the FDIC, KBRA believes that there are clear signs again of mounting future credit risk present in the zero or low default rates being reported by the U.S. banking industry. Credit does have a cost, so when U.S. financial institutions publish data that suggests otherwise, we believe that investors need to beware.
  • During the height of the mortgage bubble in 2004-2005, obligors such as Washington Mutual and Countrywide actually reported negative defaults, meaning that recoveries exceeded charge-offs, suggesting that credit had zero cost. As the late baseball great Yogi Berra once said famously: “It’s Déjà vu all over again.”
  • While consumer finance and commercial & industrial portfolios held by U.S. banks are exhibiting relatively “normal” behavior for this point in the credit cycle, KBRA notes that loan categories such as construction & development, 1-4 family mortgages, and multifamily loans are showing signs of stress. Plainly stated, the credit results measured by metrics such as charge-offs and recoveries are simply too good to be believed – or sustained.
  • KBRA notes that responsibility for the rising risk in bank loan portfolios lies squarely at the feet of the Federal Open Market Committee (FOMC), which explicitly set a policy to push up asset prices to facilitate greater risk taking. These higher asset values, however, have not been validated by the performance of the U.S. economy, either in terms of rising income or GDP. When valuations for commercial and residential assets are rising faster than income or GDP, and LTVs are rising as well, the only certainty is that the prices will not be maintained.

For the report, please use the following link:
https://www.krollbondratings.com/show_report/3042

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

Contacts

Analytical:
Kroll Bond Rating Agency
Christopher Whalen, 646-731-2366
Senior Managing Director
cwhalen@kbra.com
or
Joe Scott, 646-731-2438
Senior Director
jscott@kbra.com

Contacts

Analytical:
Kroll Bond Rating Agency
Christopher Whalen, 646-731-2366
Senior Managing Director
cwhalen@kbra.com
or
Joe Scott, 646-731-2438
Senior Director
jscott@kbra.com