For 2009, a majority of ratings changes will occur in largely regional institutions which face greater loan concentrations due to location. Nonperforming and reserve levels will vary materially across U.S. banks due to wide variances in unemployment and housing price depreciation. Unemployment will be a major driver of credit quality for consumer and corporate lending. Much of the recent increased provisions by U.S. financial institutions have targeted the expected increase in consumer loss rates in both unsecured credit and mortgages. Fitch expects provisions to peak in the second quarter of 2009 as unemployment rises and to drop back in the latter half of 2009.
A return to a Stable Rating Outlook is possible looking toward the end of 2009. For this prospect to become a reality, some semblance of investor and counterparty willingness to conduct normal activity must emerge, current government economic incentives must gain significant traction, and economic reality cannot exceed forecasts significantly on the downside in magnitude or duration. Admittedly, these conditions provide a big 'if', but Fitch's willingness to put forth the potential turn in bank fortunes recognizes that there is a reasonable chance of increased stability becoming reality.
