The credit quality of U.S. banks could be imperiled by ongoing stresses in European markets, says Fitch Ratings in a new report.
The rating agency says that U.S. banks have manageable direct exposures to the various stressed European markets, Greece, Ireland, Italy, Portugal and Spain, “in the context of [their] capital positions and earnings streams”. And, it notes that the banks have reduced their direct exposure to stressed European markets considerably over the past year.
But, it warns that further contagion poses “a serious risk”. Fitch says that it believes that, unless the Eurozone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen.
While its current outlook for the industry is stable, reflecting improved fundamentals at most banks combined with ratings that are lower than pre-crisis levels, Fitch says the risks of a negative shock are rising and could alter this outlook.