Fitch Comments On U.S. Government Programs to Stabilize & Strengthen Banks

Business Wire, Oct 20, 2008

CHICAGO & NEW YORK -- Fitch views the recent steps taken by the U.S. government to aid in the return to stability for broad capital markets and financial institutions as very positive in terms of addressing investor concern and confidence. The programs provide banks with immediate access to new tools that should prove helpful to address current challenges and navigate what is likely to be a difficult environment in coming months.

Recent steps taken by the government are already proving helpful in restoring confidence in the banking system. The programs implemented provide real benefits for banks to be able to shore up key credit fundamentals. Specifically, the programs provide ample levels of liquidity in the market, meaningful levels of new equity capital, reliable channels to aid in the disposal of troubled and illiquid assets from bank balance sheets, and open access to funding markets on what should prove to be economically viable terms.

Fitch's positive view of the programs reflects the immediacy with which capital and funding are now available. The size of capital, funding, liquidity and troubled asset purchase programs are appropriately sized to allow the banks to truly tackle the challenges they face. The programs are available to the entire industry, which is appropriate given the systemic nature of the problems.

Fitch expects these programs will be widely used by banks and will prove effective in allowing banks to address sources of current and recent financial stress, which have been greatly centered in residential real estate related exposures. The size of the programs should provide the banks with resources to attack emerging problems in the broader economy that are likely to create challenges in bank loan portfolios beyond residential real estate.

Beyond assigning 'AAA/F1 ' ratings to bank issues carrying the guarantee of the government, Fitch does not expect any immediate upgrades in bank ratings in response to the government programs. Fitch does expect the pace of downgrades of U.S. banks will slow. Further, the risk of multi-notch downgrades and jump to default for all banks, particularly the largest banks, is greatly reduced. While the programs are quite positive for banks, the challenges facing banks remain very real and significant.

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