Credit losses for machinery companies—particularly those with exposure to North America construction markets—have troughed and begun to rise and we expect further increases in losses in 2009-2010 as Europe slows and US non-residential construction activity turns down. Caterpillar has the most exposure to rising credit loses in North America construction equipment, followed by Deere and CNH. We do not expect loss levels to approach 2001 highs (about 100% higher than year-end 2007 levels) any time soon given our bullish outlook for agricultural and mining end markets, but we think asset portfolio may growth may slow due to weak US and European construction markets and as external credit providers may become more aggressive in agricultural equipment markets, given the relative attractiveness of that market for loan growth.

Industry: Machinery & Diversified Industrials

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