Thursday, May 28, 2009

FDIC Paints Dark Picture of U.S. Banking

First-Period Profit of $7.6 Billion Was Nice, but Problem Loans and 'Problem Banks' Are Rising By MICHAEL R. CRITTENDEN WASHINGTON -- U.S. banks reported a first-quarter profit of $7.6 billion, buoyed by revenue at a few larger companies, but overall the credit picture remained grim as the number of banks in trouble continued to rise and borrowers increasingly fell behind on their loans. The combined profit at more than 8,000 commercial banks and savings institutions insured by the Federal Deposit Insurance Corp. fell 61% from $19.3 billion in the first quarter of 2008. Still, the latest results were an improvement from the industry's net loss of $36.9 billion in last year's fourth quarter. There also were plenty of negative signs in data released Wednesday by the FDIC. The number of banks on the FDIC's "problem" list climbed to 305 as of March 31, up from 252 three months earlier and the highest level since 1994. Banking regulators don't disclose the names of these problem banks. More Banks Aiming to Play Both Sides of Coin Real Time Econ: FDIC List of Problem Banks Continues to Grow Meanwhile, the number of loans more than 90 days past due climbed across all major loan categories. "The first-quarter results are telling us that the banking industry still faces tremendous challenges," FDIC Chairman Sheila Bair said. "And that going forward, asset quality remains a major concern." Banks continued to aggressively add to their reserves during the quarter. The FDIC said nearly two out of every three banks increased their loss provisions during the quarter and that the industry set aside $60.9 billion in loan-loss provisions. Despite those actions, banks were increasingly unable to build their reserves fast enough to keep up with noncurrent loans. The ratio of reserves to noncurrent loans fell to 66.5% in the first quarter from 74.8% in the fourth quarter. It was the lowest level in 17 years. "Troubled loans continue to accumulate, and the costs associated with impaired assets are weighing heavily on the industry's performance," Ms. Bair said. The FDIC said that banks responded to the rising amount of troubled loans by charging off $37.8 billion during the first three months of 2009, led by loans to commercial and industrial borrowers, credit cards and real-estate construction loans. The agency said the high-level of charge-offs did little to slow the rise in loans at least 90 days past due, which increased $59.2 billion during the quarter, as the percentage of loans and leases considered non-current hit the highest level since the second quarter of 1991. The problems were spread across all major categories, though the FDIC said that real-estate loans accounted for 84% of the overall increase. Sheila Bair FDIC Chief Economist Richard Brown told reporters said regulators are seeing increasing woes in the commercial real-estate market. "That probably hasn't hit full-force yet," Mr. Brown said. The 21 bank failures during the first quarter were the most in any quarter since the last three months of 1992. The failures reduced the fund that protects consumers' deposits to $13 billion from $17.3 billion at the end of 2008. The FDIC has already taken steps to address the declining fund, voting Friday to charge banks a special fee they project will raise $5.6 billion to replenish the fund. Ms. Bair said the FDIC has no plans to access its $100 billion line of credit with the U.S. Treasury Department to help stabilize the fund. "We really don't want to go to that step," she said. "For planning purposes, we intend to continue to rely on our industry-funded reserves."

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