Credit Crunch May Only Have
Just Begun, S&P Warns

ALISTAIR BARR / MarketWatch 20feb2009

SAN FRANCISCO — The credit crunch may only be in its early stages and a bigger contraction in lending in coming months could have "serious implications" for the U.S. economy, Standard & Poor's Rating Services said Friday.

While politicians and others have complained that banks aren't lending, the data on credit outstanding credit in the U.S. only tenuously supports this idea, the rating agency said. [See related story below]

"What's behind the apparent difference between perception and reality?" Standard & Poor's credit analyst Tanya Azarchs said. "It may be that, while growth in overall credit was positive through at least third-quarter 2008, it has risen at a slower pace than at any time since 1945 — far below the 8%-10% rate in most years."

Banks are replacing loans as they mature, but there's little net new loan growth, she noted.

"That could mean that the slowdown in lending is just an opening act, and a true credit crunch may yet take the stage," Azarchs warned.

Banks are making fewer and fewer commitments to lend, and new issues of bonds and securitized assets have slowed to a trickle, the analyst said.

"This portends a contraction in total credit available in the coming months," she wrote. "Since this lack of lending may have serious implications for the economy, the U.S. government has been devising policies that would encourage banks to lend."

Given such pressure, S&P is focusing more on whether banks are free to make loans they think are prudent and on the health of the overall economy, Azarchs said.

Alistair Barr is a reporter for MarketWatch in San Francisco.

source: 22feb2009

Lending by Top Bailout Banks Fell Slightly: Treasury

ALISTAIR BARR / MarketWatch 20feb2009

SAN FRANCISCO — Lending by the biggest recipients of last year's U.S. government bank bailout dropped slightly in the fourth quarter because of falling demand and tighter underwriting standards, the Treasury Department said Tuesday.

From October to December, total residential mortgage balances reported by the 20 banks that received the most money from the first version of the Troubled Asset Relief Program were essentially flat. The median change was a decline of 1%, Treasury said.

The median percent change in corporate loan balances was also a 1% drop. Meanwhile, credit card borrowing increased, but the amount of available credit in the sector fell, Treasury reported.

In commercial real estate, renewals of existing accounts jumped 55% from October to December, while new commitments by the banks in this area dropped 19%, Treasury added.

"Due to decreasing loan demand and tighter underwriting standards, as well as other factors such as charge-offs, or losses written off on loans, banks reported a general trend of modestly declining total loan balances," Treasury said in a statement.

Since banks including J.P. Morgan Chase (JPMC) got more than $100 billion in government investments late last year, there's been intense focus on whether they are using the extra capital to increase lending.

Banks have been criticized by politicians and others for not lending more. However, the industry argues that it's difficult to find creditworthy borrowers in the midst of a deep recession.

Treasury plans to release data on lending by the top TARP recipients on a monthly basis in future.

Alistair Barr is a reporter for MarketWatch in San Francisco.

source: 22feb2009