Fourth in a series
Banking companies are better off than they were a year ago, but as the saying goes, past performance is not necessarily indicative of future results.
The threats seem legion at times, but American Banker has singled out six major risks facing the industry. Two of them, existing credit-quality problems and sufficiency of capital, are all about overcoming the legacy of the crisis. Two others, the cost of deposit gathering and the dearth of customer trust, tie back to old-fashioned retail banking. And the final two, the dangers of consolidation and the challenge of attracting talented hires to a troubled industry, address the long term: which companies will survive and who will work for them.
Credit quality is still banks’ top risk, even though the recession shows signs of easing.
Two chief concerns are dominating the outlook for the industry: How bad will banks’ loan losses get? Are they setting aside enough capital to cover those losses?
The short answers: Worse, and possibly not.
Some of the largest banks said this week that they expect to book higher losses in their consumer and business lending books this year. Fifth Third Bancorp said in regulatory filings that it expects loan losses to rise 24% in the third quarter. At a banking conference in New York, top executives with Bank of America Corp. and SunTrust Banks Inc. said they are bracing for higher losses tied to real estate.
Loan losses tend to spike even after recessions end.