U.S. Banks Post First Quarterly Loss Since 1990

 

Thursday, Mar 05,2009, 5:18:06 PM   Click:

U.S. banks post first quarterly loss since 1990 MARCY GORDONAP Business Writer The Associated Press
WASHINGTON_The country's banks have lost $ 26.2 billion during the last three months of 2008, the first quarterly deficit in 18 years, as housing and credit crisis escalated.

The Federal Deposit Insurance Corp. said Thursday that U.S. banks and thrifts more than doubled the amount set aside to cover potential loan losses, to $ 69.3 billion in the fourth quarter of $ 32.1 billion a year earlier .

Rising loan losses and erode asset values "overwhelmed" the banks, revenue in the fourth quarter, the FDIC said. More than two-thirds of all banks and thrifts made profits during this period, but their gains have been overtaken by significant losses in a number of major banks.

FDIC Chairman Sheila Bair said Friday the agency will raise insurance premiums paid by U.S. banks and thrifts, effective in the second quarter, to rebuild a depleted fund bankruptcy of 25 banks last year. Following a plan to restore the Deposit Guarantee Fund set up in October that the average increase in premiums to 13.5 cents for every $ 100 of bank deposits from 6.3 cents.

The U.S. bank believes that the failure will cost the FDIC insurance fund for deposits over $ 40 billion over the next four years.

Fourteen federally insured institutions have failed this year, extending a wave of collapse, which began in 2008. Last year, a breakdown of the 25 banks closed by regulators is more than in the previous five years combined, only three bank failures in 2007.

Failures sliced the amount of the deposit insurance fund to $ 18.9 billion at December 31, the lowest level for the fund since 1993, during the crisis of savings and credit. This compares to $ 52.4 billion a year earlier.

Regulatory authorities, there are 252 problem banks at the end of 2008, against 171 in the third quarter.

For all of last year, the banking sector gained $ 16.1 billion, the smallest annual profit since 1990, amid the ravages of rising unemployment and falling real estate prices that have send loan defaults soaring.

The fourth quarter loss of $ 26.2 billion was the largest in the 25 years that the agency has been compiling the quarterly results. That compared with $ 575 million profit in the fourth quarter of 2007.

Bair, to find a glimmer of hope in the gloomy picture, noted that the total amount of bank deposits increased in October-December period of $ 307.9 billion, or 3.5 percent _ the most rise in 10 years. Deposits in domestic banks increased $ 274.1 billion, or 3.8 percent.

This shows confidence in the banking system and deposit insurance, "said Bair. But she acknowledged that "the fourth quarter was a difficult end to a difficult year for the banking sector."

The latest indication of financial distress came as the Obama administration has proposed strengthening the federal deficit by $ 250 billion this year, pressing as much as $ 750 billion in increased government spending in program to rescue banks and other financial institutions. This would more than double the $ 700 billion bank rescue passed by Congress last October that has provided assistance to Citigroup Inc., Bank of America Corp. and hundreds of other financial institutions of all sizes.

The government has started "stress tests" Wednesday for the 19 largest banks assess whether each institution has sufficient capital to survive a serious recession. Banks need new funds will be six months to make money from the private sector or, alternatively, other injections of capital under the bailout program.

The FDIC report "confirms what we already know _ the weak economy continues to make it difficult for some businesses and individuals to repay their loans," James Chessen, chief economist at the American Bankers Association, said in a statement. At the same time, "the banks take the necessary steps to put losses behind them" and would continue, he added.

Two-thirds of U.S. banks increased their loans during the fourth quarter, Chessen said.

The Office of Thrift Supervision, meanwhile, announced a loss of $ 3 billion in the fourth quarter and a record $ 13 billion annual loss of savings and loans last year.

The agency, part of the Treasury Department, also said it is launching a new unit to oversee thrifts with over $ 10 billion in assets. The new "unit bank" will be on hand to work about 25 savings banks.

The OTS also create new standards for review of enforcement on thrifts that do not meet minimum standards.

Thrifts are important for consumer loans, because they must be at least 65 percent of their mortgages and other consumer loans. This was also particularly vulnerable to a recession in the housing: the troubled assets now represent more than 2.5 percent of total assets of savings, up nearly 1.7 percent a year ago.

Two of the largest bank failures in the nation's history took place last year and thrifts in question, and some MPs have raised concerns about the OTS 'supervision of the industry.

Pasadena, California-based IndyMac Bank collapsed in July and cost the federal deposit insurance and $ 10.7 billion Seattle-based Washington Mutual Inc. was the largest U.S. bank failure ever. Wamu fell in September, with nearly $ 307 billion in assets and was acquired by JPMorgan Chase & Co. for $ 1.9 billion in an agreement brokered by the FDIC.

The Inspector General of the Treasury, in a report released Thursday, found that the agency missed signs on savings IndyMac and irresponsible expansion of mortgage credit, and have acted against the bank much earlier than it has made. IndyMac's "high risk justifies the strategy and earlier careful attention" to the regulations, said the report by Inspector General Eric Thorson.

OTS said in its response to the report that its agreement with the findings and describes the measures taken to address the regulatory gaps _ including the establishment of the new unit for large thrifts.

U.S. banks and thrifts in the third quarter decreased by 94 per cent of profits to $ 1.7 billion, from $ 27 billion over the same period in 2007. Institutions wrote off $ 27.9 billion in bad loans during the quarter July-September.

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AP Business Writer Daniel Wagner contributed to this report.

© Copyright 2009 The Associated Press. All rights reserved. This material May not be published, broadcast, rewritten or redistributed. WASHINGTON_The country's banks have lost $ 26.2 billion during the last three months of 2008, the first quarterly deficit in 18 years, as housing and credit crisis escalated. The Federal Deposit Insurance Corp.