884 U.S. banks still on FDIC "problem bank list"

Nearly 12% of U.S. banks remain at risk of failure even as the industry completed its first profitable year since 2007, the Federal Deposit Insurance Corp. said Wednesday in its quarterly report on the banking industry.

The FDIC said that 884 of the nation's 7,657 banks were on its "problem list" at the end of December 2010, up from 860 at the end of September 2010. The agency expects that the number of annual bank failures peaked last year at an 18-year high of 157. So far, 22 banks have failed this year, slightly ahead of last year, when 20 had been seized by regulators at this point.

Industrywide net income totaled $21.7 billion for the fourth quarter of 2010, up from a loss of $1.8 billion a year earlier, but down from a revised profit of $24.7 billion in the third quarter. It was the fourth consecutive profitable quarter for the U.S banking industry, which is slowly emerging from the 2008 financial meltdown.

For all of 2010, the industry reported a profit of $87.5 billion, compared with a revised loss of $10.6 billion in 2009. About 21% of institutions were profitable last year, compared with nearly 32% in 2009.

"While earnings in 2010 remain well below pre-crisis levels, the past year marked a significant milestone on the road to recovery," said FDIC Chairman Sheila Bair. The FDIC said 62% of U.S. banks reported a year-over-year improvement in their quarterly results.

Bair, however, noted that much of banks' turnaround is the result of less money being set aside for soured loans. Banks set aside $31.6 billion for loan losses in the fourth quarter, down nearly 50% from a year earlier.

"There is a limit to the amount that smaller loan-loss provisions can contribute," to banks' bottom lines as revenues remain stagnant, Bair said. "A key reason why revenues haven't grown faster is that loans have not been growing."

Total lending fell for the ninth time in the past 10 quarters, with the largest reduction in real-estate construction loans and non-credit-card consumer loans, the FDIC said. Credit card and home mortgage lending grew. Total loan and lease balances fell 0.2%, or $13.6 billion, while total assets for the industry fell 0.4%, or $51.8 billion.

The FDIC made large revisions in overall industry earnings for two quarters in 2009 and one in 2010 due to a decision by Bank of America Corp. (BAC) to restate eight quarters of reports to regulators to reflect a $20.3 billion write-down due to deteriorating credit and new regulations over the past two years.

As a result, the entire U.S. banking industry's 2009 net income swung from a $12.5 billion profit to a $10.6 billion loss, the FDIC said. In the third quarter of 2010, however, the industry's net income increased from a $14.5 billion profit to a $24.7 billion profit.

Bank of America's restatements, announced Monday, were taken only in "call reports" filed to bank regulators. They relate to the bank's FIA Card Services NA unit, which manages its debit-card business.

The number of loans at least three months past due fell for the third consecutive quarter. At year's end, non-current loans and foreclosed properties represented 3.1% of all industry assets, the lowest share since the third quarter of 2009.

The FDIC said its deposit insurance fund had a deficit of $7.4 billion, an improvement from $8 billion in September. The agency taps that fund to cover the cost of bank failures, and expects its balance to turn positive this year.

The number of U.S. banks and thrifts also continued to fall as banks continued to close and consolidate. There were 355 fewer U.S. banks and thrifts at the end of December than a year earlier.

Source: Dow Jones
Date: 01.03.2011 [283]