Moody's Investors Service expects "substantial additional" loan-loss provisions by U.S. banks through next year and said many of them will be unprofitable for "extended periods" as a result.
"Stress on capital levels" will be another result, Moody's said.
Craig Emrick, Moody's senior credit officer, said, "We do not believe asset-quality deterioration for the U.S. banking industry has reached its peak, and we therefore anticipate multiple quarters of losses for a large number of rated banks."
In a reiteration of its June look at the industry, Moody's expects U.S. rated banks to incur about $470 billion of loan and security losses and writedowns this year and next year, with $415 billion of those in the form of loan writedowns.
Through the first half of this year, U.S. rated banks recorded $70 billion of net chargeoffs, or about 1.3% of loans outstanding on Dec. 31, Moody's said Thursday.
Moody's expects an additional $345 billion in the second half and all of 2010, equal to 6.2% of loan balances at yearend 2008. On a percentage basis, that is nearly double the amount banks had set aside for future loan losses at June 30.
Increased provisions helped push 44% of U.S. rated banks into the red in the second quarter, Moody's said. But those companies made up just 19% of rated banks' loans. Bigger lenders' investment banking and securities operations helped their second-quarter results.
Delinquency rates are rising for all loan categories as unemployment continues to rise and credit markets remain tight. But commercial real estate has been among the worst performers of late after holding up far longer than residential real estate.
"Commercial real estate has caught up with — and has surpassed by some measures — residential real estate deterioration," said Joseph Pucella, a Moody's official. Nonperforming loans on commercial real estate were 7.2% as of June 30 at rated U.S. banks compared with 5% for residential. Chargeoff rates were similar.
On a more positive note, the quarter showed a "slight decline" in early-stage delinquencies as well as a stabilization of the ratio of allowance for loan losses to nonperforming loans.
Still, Moody's kept a negative outlook on the industry.