Financial woes seen limiting U.S. economic rebound

NEW YORK (Reuters) - The U.S. banking industry may have pulled back from the brink, but finance executives say they still face hurdles that will tighten credit and delay an economic rebound.

In recent months the industry has shown signs of recovery from the worst recession in 70 years, which crushed some of the nation's biggest banks and forced others to write down tens of billions of dollars in toxic assets.

But with banks reluctant to lend and consumers afraid of borrowing, chances of a strong and quick economic recovery are slim, bankers and investors said at the Reuters Global Finance Summit this week.

"It will take at least a couple of years to come out of this recession," said Denis Salamone, chief operating officer of Hudson City Bancorp (HCBK.O), the biggest U.S. thrift.

CONSUMERS PULLING BACK

The U.S. economy grew at an annual rate of 3.5 percent in the third quarter, its first growth in more than a year. But the main impetus was government subsidies on cars and housing.

"We have to be cautious here because unemployment is still a big uncertainty, is forecast to continue to rise, and so we have to take a cautious outlook, even though things are notably better than they were a year ago," American Express Co (AXP.N) Chief Financial Officer Dan Henry said.

Unemployment rose to a 26-year high of 10.2 percent in October and is expected to be a drag on the economy for some time.

"Companies are not yet confident that we will be out of this. And some are concerned about a second dip coming out of this recession and, therefore, they are not hiring," Salamone said.

"People's consumption attitude is going to be different over a period of time, and I think that will lead them to not be the whole engine of the world economy," said Takeo Sumino, chief operating officer of Nomura Holding America, a unit of Japanese brokerage Nomura Holdings (8604.T).

BANKS STILL FACE PROBLEMS

Banks -- which need to increase lending for a true recovery to take hold -- have been trimming credit to cushion losses and save capital.

Mortgage delinquency rates and the percentage of loans in foreclosure jumped to record highs in the third quarter, according to the Mortgage Bankers Association. It forecast the trend will continue into 2010.

Credit card losses are seen peaking next year, and commercial real estate losses will likely become a big headache for more lenders.

"With commercial real estate, we are in the eye of the hurricane ... The economy can't, in my opinion, grow fast enough that the tenants are going to go out and start hiring and growing and building ...," said Howard Lutnick, chairman and chief executive of investment bank Cantor Fitzgerald.

Despite government bailouts and private capital injections, FBR Capital Markets analyst Paul Miller said banks need to raise "hundreds of billions of dollars of capital."

"If you think chargeoffs are bad now, wait until this unemployment rate sticks at 10 percent for over a 12-month time period," he said. "Everybody tries to live their lifestyle, and people only begin to change their lifestyle when they lose their job. Then reality sets in."

(Reporting by Juan Lagorio; editing by John Wallace)