FDIC: rough quarter for banks, 27 more banks join problem list
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FDIC today released data on commercial banks insured by them. Net Earnings for these commercial entities fell to $5 billion, a decline of $31.8 billion (86.5 percent) from the $36.8 billion that the industry earned in the second quarter of 2007. The latest earnings were the lowest for the industry since the fourth quarter of 1991.
“By any yardstick, it was another rough quarter for bank earnings, but the results were not unexpected as the industry coped with financial market disruptions, the housing slump, worsening economic conditions and the overall downturn in the credit cycle,” said FDIC Chairman Sheila C. Bair.
The FDIC’s “problem list” of banks grew to 117 institutions from 90 at the end of the first quarter. That is largest number on the list since the middle of 2003. Total assets of problem institutions increased from $26 billion to $78 billion, with $32 billion coming from IndyMac Bank, F.S.B., Pasadena, CA, which failed in July. “More banks will come on the list as credit problems worsen,” Chairman Bair added. “Assets of problem institutions also will continue to rise.”
The size of the earnings decline was mainly attributable to a few large institutions, but more than half of all insured institutions (56.4 percent) reported lower net income in the second quarter. In addition, the industry reported lower noninterest income than a year earlier, reflecting continuing weakness in market-sensitive revenues, such as income from trading and securitization activities. Expenses for goodwill impairment and other charges to intangible assets were significantly higher than a year earlier. Proceeds from sales of securities and other assets yielded a net loss in the second quarter, compared to a net gain a year ago.
Rising levels of troubled loans, particularly in real estate portfolios, led many institutions to increase their provisions for loan losses in the quarter. Loss provisions totaled $50.2 billion, more than four times the $11.4 billion the industry set aside in the second quarter of 2007. Almost a third of the industry’s net operating revenue (net interest income plus total noninterest income) went to building up loan-loss reserves.
The FDIC data also indicates that loans that are noncurrent continue to rise. Loans are considered noncurrent if they are 90 days or more past due.
It seems like the economy is not showing much improvements despite recent fall in oil prices and infalationary forces modertaing a bit. With the US presidential elections heating up as the Democrats and Republicans head into their respective national conventions, the state of the US economy might just become the most pressing issue for the common man to consider when they go out and vote.
