BofA and Citi Weakest Among Large Banks: Weiss Ratings

Twenty months after the massive, multi-billion dollar federal bailouts designed to shore up the nation's largest banks, the independent credit rating agency ""Weiss Ratings"":http://www.weissratings.com finds that Bank of America; Citibank; Wachovia,[IMAGE]now part of Wells Fargo; HSBC Bank USA; Suntrust Bank; and thousands more are still vulnerable to financial difficulties or even possible failure, based on its statistical analysis of each bank's capital, asset quality, earnings, and other factors.

Overall, 2,259 U.S. banks and savings and loans, controlling $5.8 trillion or 43.8 percent of the industry's total assets, merit a Weiss Financial Strength Rating of D+ (weak) or lower. According to a 1994 Government Accountability Office (GAO) study of Weiss Ratings scale, a Weiss Rating of D+ or lower is considered ""vulnerable.""

Only 962 institutions, with $484 billion, or 3.7 percent of the industry's assets, are viewed by Weiss Ratings as strong enough to be recommended to consumers, receiving a rating of B+ (good) or higher.

""Major U.S. banks continue to be plagued by toxic assets and an inability to raise capital,"" said Martin D. Weiss, chairman of Jupiter, Florida-based Weiss Ratings. ""Despite the federal government's help, we've witnessed 73 bank failures so far in 2010, more than double last year's pace - a pattern that is bound to continue as further loan deterioration and regulatory reform take their toll on already-shaky banks.""

Weiss continued, ""For consumers and also for bank regulators, the big dilemma is that many of the largest banks are still weak, while most of the strongest banks are relatively small and have fewer branches.""

Among the U.S. banks Weiss Ratings considers vulnerable, there are 20 large institutions with $25 billion or more in assets, among which seven have $100 billion or more.

Of those Weiss Ratings includes in its ""strongest"" list, there is only one with $100 billion or more in assets - State Street Bank & Trust - which does not generally accept

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consumer deposits, while Goldman Sachs Bank USA, with $91 billion in assets, also serves mostly brokerage customers. All of the remaining strong banks are far smaller, with the largest among them, Silicon Valley Bank, controlling only $12.2 billion in assets.

Weiss Ratings' report has caused quite a stir. ""Milwaukee's BizTimes Daily"":http://www.biztimes.com/blogs/milwaukee-biz-blog/2010/5/25/wisconsin-banks-retort-against-bleak-ratings-report published a local banking trade group's retort to its story that reported 97 Wisconsin banks are considered ""vulnerable.""

Kurt Bauer, president and CEO of the Wisconsin Bankers Association, told the news agency, ""The public and media should not place any credibility in ratings of federally insured depository institutions prepared by private companies. The only accurate ratings for financial institutions are issued by government regulatory agencies, and they are not made public out of fear that they could unnecessarily alarm depositors. The private company ratings…provide a narrow snapshot rather than a complete picture of the institution in question.""

In response, Weiss Ratings issued the following statement: ""Weiss Ratings believes that any attempt to discourage publication of responsible ratings and opinions can represent a disservice to the public. [I]ndependent rating agencies help fill an important information void. [D]uring the recent banking crisis, the total assets of the failed banks greatly exceeded the total assets of banks on the FDIC's list of problem banks. Thus, the FDIC's ratings evidently failed to warn regulators themselves of major U.S. bank failures in 2008-2009.""

While the instability of European financial markets may be proving beneficial for homebuyers here in the United States in the form of ""lower mortgage rates"":http://dsnews.comarticles/mortgage-rates-drop-to-lowest-level-of-year-2010-05-27, Weiss Ratings says the impact on the nation's banks could take a very different direction.

""The debt crisis raging through Europe threatens to undermine the asset quality, earnings and capital of U.S. banks already weakened in the wake of the 2008-2009 domestic debt crisis,"" Weiss said.

He notes that already, based on year-end data that does not yet reflect the impact of the debt crisis, his firm had assigned D+ (weak) or lower ratings to 20 U.S. banks with assets exceeding $25 billion.

""As the European debt crisis unfolds,"" Weiss said, ""these banks are likely to face further instability in global financial markets, reduced prospects for global economic growth, and potential declines in a wide variety of risk assets, such as nonperforming loans and derivatives.""

Weiss Ratings assessments of the most vulnerable and strongest U.S. banks can be found on the ""company's site."":http://www.weissratings.com/news-releases/general-2010-05-24.html