Credit Outlook Remains Negative for Most U.S. Banks: Fitch

""Fitch Ratings"":http://www.fitchratings.com warned Tuesday that the still-weak financial fundamentals of the nation's lenders have cemented its rating outlook for the U.S. banking sector as negative. The New York-based agency did note, though,[IMAGE]that many of the factors that have been putting downward pressure on banks' ratings, including lending and liquidity, are easing.

Fitch's negative outlook is focused mainly on the nation's regional banks, where a large portion of the institutions rated by the firm maintain a negative outlook or are on negative watch.

The ratings agency said while it expects fundamental financial performance for the banking sector to remain generally weak throughout most of 2010, it doesn't anticipate additional broad-sweeping downgrades. For the larger U.S. banking institutions, Fitch said the credit outlooks on long-term issuer default ratings (IDRs) remain generally stable.

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Generally, the regional banks are more susceptible to further downgrades than the larger institutions because of their concentration in traditional lending activities and greater exposure to commercial real estate (CRE) losses, Fitch explained. The agency's analysts say they continue to view CRE risk as a ""key area of concern"" for the U.S. banking sector.

Fitch's assumptions are aligned with the recent ""findings of the Congressional Oversight Panel"":http://dsnews.comarticles/tarp-watchdog-says-small-banks-cre-losses-could-hit-300-billion-2010-02-12 (COP), which paint a grave cautionary tale of commercial real estate losses going as high as $300 billion over the next couple of years, threatening to topple nearly 3,000 community banks nationwide, where CRE concentrations are greatest.

Fitch says it is beginning to see some signs of stability in lenders' asset holdings, but the agency remains cautious in its outlook for 2010. Its analysts say high levels of losses from consumer-related exposures â€" particularly mortgages and home equity loans â€" likely will persist well into the current year.

In addition, CRE exposure will likely result in ""considerable incremental charges"" in 2010, Fitch said. On a cumulative basis, the agency puts CRE losses for the banks it monitors at $25 billion from the beginning of 2008 to now. Given their lagging effect, Fitch anticipates that CRE losses will continue to trend higher throughout 2010.

The ratings agency says these factors will weigh heavy on lenders' earnings well into the current year and most likely into 2011.