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Double dip in economy could trouble banks in 2011
[12:00:00 AM Wednesday, December 29, 2010]
According to Moody's Investor Service, a double dip in the global economy heading back into recession could strain the US banks to a great extent. In a research note released quarterly, it was shown that the loan losses faced by US banks are better even as the global economy has healed to some extent since the economic crisis of 2008.
Losses are still at high levels and have failed to recover at the same rates at which they went down in 2009. More losses would strain the credit ratings of the banks, according to Moody, which could affect their efforts to improve capital. In the years stretching up to the economic crisis, the 3 main rating agencies in the country couldn`t recognize the credit issues at major banks like Bank of America Corp, J Morgan Chase & Co. and Citigroup Inc.
The loan losses are expected to return back to normal over the next year and a half according to Moody`s although, this recovery wouldn`t be consistent. US banks according to Moody, will be able to recognize 744 billion dollars in charge-offs between the end of next year from 2008, which represented the peak of the economic crisis to a great extent.
According to latest estimates from Moody`s, US Banks have been able to recognize 2/3rds of the total loans which amount to 497 billion dollars in charge-offs. 247 billion dollars still remain to be recognized. Given the loan reserves of banks and pre-tax income, these losses are manageable from the banks` perspective.
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