New York: US banks face a "serious risk" that their creditworthiness will deteriorate if Europe's debt crisis deepens and spreads beyond the five most-troubled nations, Fitch Ratings said.
"Unless the Eurozone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the US banking industry could worsen," the New York-based rating company said on Wednesday in a statement.
Even as US banks have "manageable" exposure to stressed European markets, "further contagion poses a serious risk," Fitch said, without explaining what it meant by contagion.
The "exposures" of US lenders to major European banks and the stressed nations of Greece, Ireland, Italy, Portugal and Spain, known as the GIIPS, are smaller than those to some of the continent's larger countries, Fitch said.
The six biggest US banks — JPMorgan Chase & Co, Bank of America, Citigroup, Wells Fargo & Co, Goldman Sachs Group and Morgan Stanley — had $50 billion (Dh183.6 billion) in risk tied to the GIIPS on September 30, Fitch said. So-called cross-border outstandings to France for all except Wells Fargo were $188 billion, including $114 billion to French banks. Risk to Britain and its banks was $225 billion and $51 billion, respectively.
Europe's debt crisis has toppled four elected governments, with the last two, in Greece and Italy, falling last week. Italian bond yields remained at about 7 per cent — the threshold that led Greece, Portugal and Ireland to seek bailouts — and shares of French banks, including BNP Paribas and Societe Generale, dropped amid concern they'll need more capital.
Stocks slump
US stocks slumped on Wednesday after the Fitch report was released. The Standard & Poor's 500 Index slid 1.7 per cent and the 24-company KBW Bank Index declined 1.9 per cent. US index futures fell earlier yesterday as Spanish and French borrowing costs rose.
The Fitch report is a worst-case scenario and is "oddly out of step" with the rating company's previous reports, analysts at HSBC said yesterday. US banks may even benefit as investors shift money to the US from Europe, HSBC said.
