Commercial banks feeling crunch too

Merrill Lynch reported $6 billion new write-offs for the first quarter, and the brokerage says it will have to cut 4,000 jobs. Analyst Tanya Azarch talks about the bigger picture for investment and commercial banks.

Renita Jablonski: The earnings report is in for Merrill Lynch. Merrill had more than $6 billion of fresh write-downs in the first quarter. Those write-downs mean a first quarter loss of $2 billion. Last year at this time, the brokerage was reporting a $2 billion profit. Now, the firm says it will have to cut 4,000 jobs. Tanya Azarch joins us. She's a bank-rating analyst with Standard & Poors. All right, Tanya, Merrill's results really, really rough, but I guess in this environment, not shocking. What's the bigger picture for investment banks?

Azarch: For innvestment banks, I think the markets themselves have stabilized a bit after the Central Bank action, so there's a little bit of a floor underneath the credit market that's been forming. So unless that floor falls out once again, I think that there's probably not much more need for additional write-offs.

What about commercial banks? What's happening there at this point?

Azarch:The commercial banks are starting to see a real deterioration in their loan portfolios. The banks have made loans with low documentation, borrowers that didn't show proof of income and in markets that are continuing to deteriorate in terms of house prices. It's going to cause a lot of problems for banks. We're expecting to see higher write-offs, and we're expecting banks also to increase their reserves in anticipation of this problem. So you're going to get a double whammy.

How does all of this translate for the average consumer and especially the potential homebuyer?

Azarch: Well, as banks are tightening their underwriting standards, particularly in the home lending area, the auto loaning area. As they do that they're going to require more equity, more of a downpayment. Essentially, it's going to be harder to get a loan.

Tanya is a bank-rating analyst with Standard & Poors. Tanya, thanks.

Azarch: You're welcome.