Banks Earned $7.6 Billion In First Quarter Profits
WASHINGTON — The nation's banks turned a profit in the first quarter, but the number of problem banks jumped to the highest level in 15 years and tough conditions persist for the industry, the government said Wednesday.
The Federal Deposit Insurance Corp. said higher trading revenues and lower borrowing costs at big banks helped the industry earn a $7.6 billion profit in the January-March period, compared with a record loss of $36.9 billion in the fourth quarter. The profit was 61 percent below the $19.3 billion earned in the year-earlier period and followed the first quarterly loss in 18 years.
The 8,246 U.S. banks and thrifts set aside $60.9 billion in the first quarter to cover potential loan losses, up from $36.2 billion a year earlier. More than one of every five banks and thrifts suffered a net loss for the first quarter.
"As I see it, we're now in the cleanup phase for the banking industry," FDIC Chairman Sheila Bair said.
Troubled loans continue to pile up on banks' books and losses from soured loans "are weighing heavily on the industry's performance," FDIC Chairman Sheila Bair said. "Nevertheless, compared to a year ago, we see some positives."
Those include the increase in banks' net interest income and revenue from sources other than interest such as trading, she said.
"Banks are making good efforts to deal with the challenges they're facing. But ... we're not out of the woods yet," said Bair.
While the pounding from losses on home mortgages may be nearing an end, delinquencies on commercial real estate loans remain a hot spot of potential trouble, FDIC officials said. If the recession deepened, defaults on the high-risk loans could soar. Many regional banks, especially, hold large concentrations of them.
The number of troubled banks leaped to 305 in the first quarter, the highest number since 1994 during the savings and loan crisis, from 252 in the fourth quarter, according to the FDIC. The combined assets of those banks on the agency's confidential list rose to $220 billion from $159 billion.
The first-quarter results show "that banks are continuing to work through the problems presented by a difficult economy," James Chessen, chief economist of the American Bankers Association, said in a statement. While earnings were down from a year ago, "they are the highest they have been in four quarters, and two out of every three banks increased their assets in the first quarter," he said.
Thirty-six federally-insured institutions already have failed and been shut down by regulators this year, extending a wave of collapses that began in 2008. This year's tally compares with 25 in all of 2008 and three in 2007.
The failures sliced the amount in the deposit insurance fund to $13 billion in the first quarter, the lowest level since 1993. That compares with $17.3 billion in the fourth quarter and $52.4 billion at the end of 2007.
The FDIC expects U.S. bank failures to cost the deposit insurance fund around $70 billion through 2013.
Bair said the agency has $28 billion in reserves set aside to cover losses from failures over the next 12 months, after putting in $6.6 billion in the first quarter.
The FDIC on Friday adopted a new system of emergency fees paid by U.S. financial institutions that will shift more of the burden to bigger banks to help replenish the insurance fund. The move by the agency cut by about two-thirds the amount of special fees to be levied on banks and thrifts compared with an earlier plan, which had prompted a wave of protests by small and community banks.
The new system is intended to raise about $5.6 billion. Additional emergency assessments could come later in the year, the FDIC has said.
Congress last week more than tripled the amount the FDIC could borrow from the Treasury Department if needed to restore the insurance fund, to $100 billion from $30 billion. Bair had earlier promised a reduction in fees charged to banks if that credit line could be expanded.
The FDIC also recently levied a surcharge on banks issuing debt under the agency's temporary rescue program. Under it, the FDIC guarantees hundreds of billions of dollars in debt if there are payment defaults by the issuing banks. Those surcharges, nearly $8 billion collected already, will help compensate for the reduction in insurance premiums, the agency said.
Government "stress tests" of the 19 biggest U.S. banks earlier this month showed 10 of them had to raise a total of $75 billion in new capital to withstand possible future losses. Of those, Bank of America Corp. needs the most by far _ $33.9 billion. Wells Fargo & Co. needs $13.7 billion, auto lender GMAC LLC $11.5 billion, Citigroup Inc. $5.5 billion and Morgan Stanley $1.8 billion.
The tests were a key part of the Obama administration's plan to fortify the financial system. The banks have until June 8 to develop a plan and have it approved by their regulators. If they can't raise the money on their own, the government said it will dip further into its bailout fund.
Some banks have asked to be allowed to bid on the same toxic mortgage and other assets that they would be selling under the government's new public-private program expected to start in July with as much as $100 billion in taxpayer funding. But Bair said Wednesday that won't be permitted
The closing last week of struggling Florida thrift BankUnited FSB is expected to cost the insurance fund $4.9 billion, the second-largest hit since the financial crisis began. The costliest was the July 2008 seizure of California lender IndyMac Bank, on which the insurance fund is estimated to have lost $10.7 billion.
The largest U.S. bank failure ever also came last year: Seattle-based thrift Washington Mutual Inc. fell in September, with about $307 billion in assets, and was acquired by JPMorgan Chase & Co. for $1.9 billion in a deal brokered by the FDIC.
Loading comments…
MARCY GORDON | May 27, 2009 02:20 PM EST |
Compare other versions »Compare and versions