Problem banks rise t o305, highest since 1994, FDIC says

By Margaret Chadbourn and Alison Vekshin May 27 (Bloomberg) -- U.S. “problem” banks climbed 21 percent to the highest total in 15 years in the first quarter, and provisions set aside for loan losses weighed on industry earnings, the Federal Deposit Insurance Corp. said. The FDIC classified 305 banks with $220 billion in assets as “problem” lenders as of March 31, rising from 252 with $159 billion in assets in the fourth quarter, the agency said today without naming any institutions. The FDIC said its insurance fund slumped 25 percent in the period. “The first-quarter results are telling us that the banking industry still faces tremendous challenges, and that going forward asset quality remains a major concern,” FDIC Chairman Sheila Bair said today in a statement. Regulators have taken over 36 lenders this year, including BankUnited Financial Corp. in Florida on May 21 and Silverton Bank of Atlanta on May 1, which combined cost the FDIC’s deposit insurance fund $6.2 billion. Twenty-one banks collapsed in the first quarter compared with 25 that failed in 2008, as the pace of failures accelerated amid the worst financial crisis since the Great Depression. FDIC-insured banks reported net income of $7.6 billion in the first quarter compared with a $36.9 billion loss in the fourth. The insurance fund fell to $13 billion, from $17.3 billion in the previous quarter. The FDIC is imposing an emergency fee to raise $5.6 billion to rebuild the fund. Citigroup Inc. reported a $1.6 billion first quarter profit on April 17 after five consecutive quarterly losses. JPMorgan Chase & Co., Goldman Sachs Group Inc., and Wells Fargo & Co. also beat analysts’ expectations with gains between January and March. Funds set aside by banks to cover loan losses rose to $60.9 billion in the first quarter from $37.2 billion in the year- earlier quarter. The FDIC insures deposits at 8,246 institutions with $13.5 trillion in assets. The agency reimburses customers for deposits of as much as $250,000 when a bank fails.