LONDON Banks will continue to suffer into 2009 as turmoil in the credit markets drags on, credit ratings agency Standard & Poor's said on Friday.
The structured finance market -- which packages loans and bonds to be re-sold in chunks across the investment community and which has been a key source of funding for many banks -- may take longer than that to return, S&P said in a report.
"The structured finance market has been significantly affected and it may take years for the market to return," the report said.
Banks, including UBS AG UBSN.VX, have announced a combined $90 billion in write-downs of leveraged loans, sub-prime securities and collateralized debt obligations (CDOs), S&P said.
Switzerland-based UBS said on Friday it was shrinking its investment banking business, cutting staff and drastically downsizing risk exposure.
UBS, the biggest European casualty of the U.S. sub-prime crisis, has taken charges of $14.5 billion on its exposures to CDOs and non-performing U.S. mortgages.
"Although the CDO write-downs have grabbed headlines, of equal concern are the systemic risks the downturn has highlighted," said Standard & Poor's credit analyst Scott Bugie.
Negative credit sentiment has spread throughout global markets, making it more difficult for companies to raise capital.
Banks and brokers are most likely to see their earnings continue the "weakening trend" that started after the summer, particularly in the United States, S&P said.
"Lower business flows from housing finance and fixed-income origination and trading will limit revenues, while higher risk premiums on funding and rising provisions for loan losses will weigh on pretax profits," the ratings agency said.
However, a fall in earnings this year won't lead to credit downgrades across the banking sector, S&P said.
"Most banks' strong franchises and financial resources will allow them to withstand a significant period of stress," the agency said.
(Editing by David Cowell)