FDIC Reports Struggles Ahead for Banks

FDIC Reports Struggles Ahead for Banks Carrie Bay | 05.28.09 As more people struggle to pay their mortgages, large and small banks alike have taken the hit. The FDIC reported on Wednesday that 305 banks have made the agency’s high-risk list, and more are expected as the recession and housing crisis continue. Commercial banks and savings institutions insured by the FDIC reported net income of $7.6 billion during the first three months of 2009 – that’s a 60.8 percent decline from the industry’s earnings in the first quarter of 2008. Three out of five insured institutions reported lower net income in Q1, and one in five was unprofitable. According to the FDIC, U.S. banks set aside $61 billion in the first quarter to cover projected losses on loans. And the agency said these higher loan-loss provisions, increased goodwill write-downs, and reduced income from securitization activities all contributed to the year-over-year earnings decline. The FDIC also noted that asset-quality indicators continue to decline. Insured institutions charged off $37.8 billion in bad loans in the first quarter, almost twice the $19.6 billion of a year earlier. The amount of loans and leases that were 90 days or more past due or in non-accrual status rose by $59.2 billion during the quarter, and are $154.3 billion higher than a year ago. FDIC Chairman Sheila Bair commented, “Troubled loans continue to accumulate, and the costs associated with impaired assets are weighing heavily on the industry’s performance.” Bair added, “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. Banks are making good efforts to deal with the challenges they’re facing, but [the Q1] report says that we’re not out of the woods yet. As I see it, we’re now in the cleanup phase for the banking industry.” The FDIC also reported that its insurance fund fell from $17.3 billion to $13 billion in the first quarter, after 21 institutions failed . Last week, the agency announced a new fee structure that it will charge banks in order to raise $5.6 billion to replenish its coffers. Reference: http://www.fdic.gov