A Credit Rater Sees Worst Over For U.S. Banks

IBCA Ltd. has joined Moody's Investors Service in predicting that U.S. banks' creditworthiness is not likely to slide any further.

"We're probably near bottom," said Robin Monro-Davies, managing director of IBCA, the London-based bank rating agency.

"There are some signs that things have stopped getting worse," he said.

More Downgrades Abroad

But Mr. Monro-Davies said although U.S. bank ratings appear to have stabilized, foreign banks may be headed for further downgrades.

Moody's said last week that its ratings of the top 10 American bank companies have "stabilized."

"Although the banks still face unresolved difficulties, Moody's expects that there should be no medium-term need of further general downward revision in the banks' ratings," the agency said in a recently released report.

The cautiously optimistic outlook for U.S. banks follows a general stream of downgrades since the mid-1980s.

Since 1986, Moody's median U.S. bank holding company rating has fallen to Baal, the lowest investment grade, from the high-grade Aa2.

The most recent spate of downgrades, in 1989 and 1990, were mainly motivated by concern over troubled commercial real estate loans.

"Of the top 50 U.S. banks, I'd say 22 are doing quite well, 20 are doing well, and seven are doing poorly," Mr. Monro-Davies said.

Weaker Banks Listed

He listed Shawmut Corp., BayBanks Inc., Midlantic Corp., and First City Bancorporation of Texas as among those facing the most difficulties. Citicorp is "mixed."

Mr. Davies noted that a reduction in lending by Japanese banks, cost controls, mergers, and sales of low-profit units are all improving prospects for U.S. banks.

Several banks that ran into problems in the 1980s, including BankAmerica Corp., Chase Manhattan Corp., and Manufacturers Hanover Corp., have all improved, he said.

The two rating agencies still warn that U.S. banks face significant risks from commercial real estate loans, economic uncertainties, and the challenges of merging with other banks.

An Extended Process

Mr. Monro-Davies also warned that substantial overcapacity would have to be reduced in international banking - a process that will take at least five years.

"The main reason the weakest haven't gone to the wall is because the contraction in banking is being managed by regulators," he said.

He added that foreign banks are also reassessing their operations in the U.S. and are likely to considerably reduce their presence.

In what would be the first equity offering by a major New York bank in two years, Bank of New York Corp. has filed for permission to raise $180 million. A bank spokesman said proceeds would be used for general corporate purposes. The lead underwriter is Goldman Sachs & Co.

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