Beginning of the downgrade deulge?

From marketwatch.com

Merrill Lynch cuts raft of mid-cap banks to sell

LONDON (MarketWatch) -- Merrill Lynch downgraded a raft of mid-cap regional banks citing a range of factors including lower earnings expectations and the potential for margin erosion at some of the banks if the Federal Reserve cuts interest rates. The broker said banks with balance sheets that are very "asset sensitive" -- meaning their assets reprice more quickly than liabilities -- could face margin pressure. It downgraded City National Corp (CYN), Zions Bancorporation (ZION), Associated Banc-Corp (ASBC), Cullen/Frost Bankers Inc. (CFR), Cathay General Bancorp (CATY), FirstMerit Corp. (FMER), First Midwest Bancorp (FMBI) and Texas Capital Bancshares (TCBI) all to sell from neutral. It also downgraded SVB Financial Group (SIVB) to sell from buy.

Is this a prelude to downgrades for major banks? How about brokers including Merril themselves? September is shaping up as an interesting month as a couple of brokers report 3Q07 earnings and the earnings pre-announcements come out at the end of the month.

There have been no major earnings downgrades for the major financial companies since nobody really knows how bad a hit they are going to take.

On Wednesday the FDIC reported that bank earnings dropped 3.4% in 2Q07. Separately, the Office of Thrift Supervision said thrifts' earnings dropped 8.6% in 2Q07, compared to the year-ago period.

This is largely old news however it should be noted that bank and thrift earnings began to fall even before the credit crunch really got under way. The real question is what will those numbers look like after 3Q07 and 4Q07, I suspect not very healthy.