Recovery still a struggle for world’s banks; upgrades unlikely

The global banking system has finally gotten to its feet, but it is still struggling to stand up straight, Moody's Investors Service concluded in its new report on the world's financial recovery. The ratings agency's special report — the second in a series examining the topic across nations and industries — provides an overview of the current condition of dozens of banking systems.
"Despite general signs that the world's economy is stabilizing, and a profitable quarter for some banks, most are facing significant hurdles on their path to economic recovery," said Managing Director Greg Bauer. "To examine the particulars of their situations, we assembled an international team of senior banking analysts to prepare the recovery roadmap presented in this report," he explained. Common global trends are appraised, as are those issues specific to banks in the United States, Canada, Latin America, Western Europe, Eastern Europe, Japan, other Asian countries, and the Middle East and Africa."
"It is encouraging that many banks have recently demonstrated some signs of regaining their strength," the analyst continues, "particularly since early April, when financial institutions finally became able to access capital markets, including the common equity market, on their own, without direct government backing." Since then, bank managements from the United States to Europe and Asia have been able to raise substantial amounts of funds across the full range of seniority classes.
At the same time, however, he also notes that banks' financial fundamentals are still on the downward slope, mainly because of the delay that exists between the end of a recession and actual charge-offs.
"The only short-term positive bank rating actions that are likely will be outlook changes, from negative to stable or to positive," Bauer concluded, adding that the "potential for upgrades is unlikely until 2010 without strong evidence of a sustained economic recovery." "Even then," he said, "we will be watchful for clear statements and actions from executive leadership regarding intended levels of capital, as well as for a demonstrated ability to generate sustainable earnings and remediation of risk-management shortcomings."