Fitch Ratings has released a series of 2008 rating outlooks for the U.S. financial sectors: banks, investment banks, and consumer finance companies. The outlooks for these sectors are all negative, while rating outlooks for commercial finance and asset managers are stable. These outlooks assume some further deterioration of consumer related asset quality and that liquidity in the fixed income markets remains fragile.

Much has been written on the roots of the mortgage debacle but clearly the U.S. consumer's insatiable appetite for debt, the ill-fortuned reversal of home price appreciation and rising short-term interest rates have created the perfect storm,' said Sharon Haas, Managing Director.

'Entering the final month of 2007, it remains difficult to determine with any precision when this will end and what will ultimately prove to be the antidote for this massive contagion. With the U.S. financial industry in the cross hairs, Fitch's rating outlook for this group of companies is negative, as we anticipate they will face severe headwinds for the foreseeable future as the turmoil in residential mortgage potentially spreads to other consumer asset classes,' she said.

Liquidity and access to capital remain crucial rating factors. The banks and investment banks have built liquidity through the last third of FY07 although market costs are rising. The yield curve remains inverted and secondary trading in cash fixed income products is almost nonexistent. Funding will remain a real challenge if the securitization market remains as closed as it has for a prolonged period. Although easing monetary policies and potential government intervention may soften the impact of a slowing U.S. economy, a lower overall supply of liquidity and tight credit conditions will persist well into 2008 dampening current performance and potentially suspending growth prospects across the broader sector.