FDIC Signals More Bank Failures

123jump.com Staff
23 Feb, 2010
New York City

Banks are still reeling under the weight of loan losses and shrinking lending according to the latest report from the FDIC. Both the number and assets of

[R]5:30 PM New York – Banks are still reeling under the weight of loan losses and shrinking lending according to the latest report from the FDIC. Both the number and assets of “problem” banks are at the highest level since June 1993.[/R]

Banking industry suffered its worst bank failures since 1992 and may have tough 2010.

The Federal Deposit Insurance Corp, the U.S. government agency that insures bank deposits in its quarterly report said “problem” banks at the end of fourth quarter have increased 27% to 702 banks with $402.8 billion in assets from 552 banks with $345.9 billion in assets.

The number of banks in stress at the beginning of 2009 was 252. Both the number and assets of “problem” banks are at the highest level since June 1993.

The insurance fund deficit increased to $20.9 billion at the end of the fourth quarter from $8.2 billion in the third quarter. FDIC has access to an emergency credit line with the U.S. Treasury but so far it has not tapped the facility.

FDIC Chairman Sheila Bair said at a news conference that problem “banks and banks failures tend to lag behind economic recovery” indicating more banks are likely to suffer.

For 2009 net income in the banking industry was $12.5 billion compared to $4.5 billion in 2008 and $100 billion in 2007. Much of the gains in the industry are coming from non-interest revenues as banks are still struggling with problem loans and restricting lending.

In the latest quarter ending in December banks swung to $914 million profit compared to loss of $37.8 billion in the quarter a year ago with most of the improvements in profits concentrated in few large banks.

Only largest institution with more than $10 billion in assets had positive return on assets.

Quarterly loan loss provisions were at $61.1 billion, a decline of 14.1% from the third quarter but the fifth quarter of more than $60 billion of provisions in a row.

The deposit insurance agency insures 8,012 banks with $13.1 trillion in assets and the number of banks insured declined 3.5% from 8,305.

In the current year, the FDIC has either acquired or sold 20 banks compared to 140 banks in 2009.

The bank failures are at 17-year high and are likely to increase as the Fed contemplates increasing rates. Small banks and community banks that do not have other business like proprietary trading and credit card lending are likely to face difficult times ahead.

Non-interest income in the year increased 25.4% to $52.8 billion and interest income increased 10.6% to $38.1 billion. Trading revenue in the year showed an improvement of $26.1 billion. These positive contributions were partially offset by loan loss provision increase of 40.6% to $71.5 billion.

In the year 29.5% of institutions reported negative income compared to 24.8% in 2008.

During the year, total industry assets declined by 5.3% or $731.7 billion the largest percentage decline in a year since the inception of the FDIC.

For the full year, the number of reporting institutions fell from 8,305 to 8,012. Only 31 new charters were added in 2009, the smallest annual total since 1942.

Mergers absorbed 179 institutions during the year, and 140 insured institutions failed, the largest number of bank failures in a year since 1992.

Equity capital of banks at the end of the year increased 13.7% to $1.467 trillion. Of the total assets of $13.11 trillion, real estate loans declined 5.3% from a year ago to $4.46 trillion.