Fitch Warns US Banks’ Home Equity Loans Worsening Fast

Last Update: 3/10/2008 4:20:19 PM

DOW JONES NEWSWIRES

Fitch Ratings, citing “a variety of internal and external sources,” says big U.S.
banks’ first quarter earnings reports will show unexpectedly rapid deterioration
in their portfolios of home equity loans, piling another source of stress onto an
already taxed system.

In light of the weakening, Fitch warned it may cut its ratings on money-center
giants Citigroup Inc. (C) and Bank of America Corp. (BAC) and lowered its ratings
on top savings and loan Washington Mutual Inc. (WM).

The trouble is emerging more quickly and is proving more severe than expected,
Fitch said, forcing banks to grapple with another big source of losses even as
they continue to cope with write-downs in other portfolios.

“Indications from rated banks in the past few weeks suggest that home equity
delinquency rates are rising at a far more rapid pace than even most bankers’ and
analysts’ grim outlook for 2008 had anticipated,” Fitch said in a note released
late Friday. “Fitch anticipates that banks will significantly ratchet up loan
loss provisions against home equity loans in 2008 and provisioning levels for
2008 will likely be much higher than 2007 overall, as deterioration in other
consumer portfolios is also likely.”

Fitch also took ratings actions against five other banks. The moves follow a
decision in late 2007 to adopt a negative ratings outlook on U.S. banks due to
concerns about consumer lending in general and home equity loans in particular.
Fitch said the pressures on home equity portfolios “may very well exceed” its
expectations.

-By Kathy Shwiff, Dow Jones Newswires;

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