In the Marketplace

In a recent Financial Services Special Report by Fitch Ratings of New York, 'U.S. Finance & Leasing 2007 Outlook ' Tougher Sledding,' the rating company concluded that the outlook for 2007 is 'broadly Stable, however, stress points are beginning to emerge, most noticeably in the residential mortgage arena.' Although the scope of companies covered by the report is quite diverse, a few common themes were present. First, the credit cycle is becoming less benign, which could cause a rise in delinquencies and losses. This is already showing up in the subprime residential mortgage sector. Second, the report notes, capital management is becoming more aggressive, as leverage, on any measure, is increasing. Although issuers are managing capital more aggressively, the analysts did not see immediate rating repercussions as they felt issuers are more sophisticated in capital planning and are better able to tie together capital and credit risk. Third, the continued flat to inverted yield curve represents a major challenge to all lenders, which Fitch does not anticipate to normalize in the short-run, leaving finance and leasing companies to wrestle with this issue well into 2007.