UPDATE 1-Some US banks face failure as credit problems mount-RBC
(Recasts; adds analyst's comments, background, share movement)
April 7 (Reuters) - During the next two to three years, U.S. bank failures will likely increase dramatically from the low levels recorded from 2004 to 2007, as credit problems mount for the industry, a RBC Capital Markets analyst said.
"We anticipate upwards to 150 banks will fail over the next two years. Banks that deplete their capital through rising credit losses are most vulnerable to failure," Gerard Cassidy said.
He said credit problems at U.S. banks are expected to worsen throughout the year from existing levels and are unlikely to peak until sometime next year, also noting that widespread housing deflation will put further pressure on the economy.
"As we move deeper into 2008, we expect to see economic growth grind to a halt with recessionary pressures mounting as the year progresses," Cassidy said, recommending investors "underweight" the bank sector.
Recent aggressive actions taken by the Federal Reserve provide some relief to illiquid credit markets, but do not directly address deteriorating commercial real estate and construction and development credit quality trends, Cassidy said.
He expects an uncertain political environment in a presidential election year, continued deteriorating market fundamentals in the residential market and higher unemployment to force credit costs higher for the U.S. banking industry.
He said any potential recessionary period will only weaken credit quality at commercial banks from current levels, likening current trends to the 1990-91 recession.
In the 1990 downturn for banks, delinquent loans were rampant and reached levels that led to massive bank failures all over the country, he noted. Continuación...