DBRS Not Impressed With Bank Earnings

As the bank earnings season starts to wind down, credit rating firm DBRS said the results for the most part show a weak quarter. "Despite the improvement in financial markets and some promising signs in housing markets, DBRS still expects that mounting job losses, the weak economy and the sustained pressure of asset quality deterioration will keep bank earnings weak at least into the middle of 2010. This economic pressure is falling more heavily in some regions of the country, especially where housing markets and real estate activity collapsed and remain depressed," a report from the company said. Nonperforming loans are increasing, but at a slower pace. Like many others, the Chicago firm is projecting commercial real estate as the next hot spot. CRE portfolios have held up well except for construction loans. But higher vacancies, lower rents and depressed valuations will have an impact, as the weakness in the economy feeds through to demand for commercial space. "CRE is likely to be the weak link in a bank earnings recovery," DBRS said. The report also noted that mortgage banking income in general was lower when compared with the second quarter of this year.