Insured banks and thrifts lost $26.2 billion in the fourth quarter MortgagePress.comFDIC, banks, savings institutions, losses, Sheila Bair, Problem List, Temporary Liquidity Guarantee Program
Commercial banks and savings institutions insured by the Federal
Deposit Insurance Corporation (FDIC) reported a net loss of $26.2
billion in the fourth quarter of 2008, a decline of $27.8 billion
from the $575 million that the industry earned in the fourth
quarter of 2007 and the first quarterly loss since 1990. Rising
loan-loss provisions, losses from trading activities and goodwill
write-downs all contributed to the quarterly net loss as banks
continue to repair their balance sheets in order to return to
profitability in future periods.
More than two-thirds of all insured institutions were profitable
in the fourth quarter, but their earnings were outweighed by large
losses at a number of big banks. Total deposits increased by $307.9
billion (3.5 percent), the largest percentage increase in 10 years,
with deposits in domestic offices registering a $274.1 billion (3.8
percent) increase. And at year-end, nearly 98 percent of all
insured institutions, representing almost 99 percent of industry
assets, met or exceeded the highest regulatory capital
standards.
"Public confidence in the banking system and deposit insurance
is demonstrated by the increase in domestic deposits during the
fourth quarter," FDIC Chairman Sheila Bair said. "Clearly, people
see an FDIC-insured account as a safe haven for their money in
difficult times."
For all of 2008, insured institutions earned $16.1 billion, a
decline of 83.9 percent from 2007 and the lowest annual total since
1990. Twelve FDIC-insured institutions failed during the fourth
quarter and one banking organization received assistance. During
the year, a total of 25 insured institutions failed. The FDIC's
"Problem List" grew during the quarter from 171 to 252
institutions, the largest number since the middle of 1995. Total
assets of problem institutions increased from $115.6 billion to
$159 billion.
In its latest release, the FDIC cited deteriorating asset
quality as the primary reason for the drop in industry profits.
Loan-loss provisions totaled $69.3 billion in the fourth quarter, a
115.7 percent increase from the same quarter in 2007. In addition,
the industry reported $15.8 billion in expenses for write-downs of
goodwill (which do not affect regulatory capital levels), $9.2
billion in trading losses and $8.1 billion in realized losses on
securities and other assets.
The FDIC provided data on industry use of the Temporary
Liquidity Guarantee Program (TLGP), which was established in
mid-October to address credit market disruptions and improve access
to liquidity for insured financial institutions and their holding
companies. The TLGP, which is entirely funded by industry fees that
totaled $3.4 billion as of year-end, has two components. One
provides a 100 percent guarantee of all deposits in
noninterest-bearing transaction accounts, such as business payroll
accounts, at participating institutions. The other provides a
guarantee to newly issued senior unsecured debt at participating
institutions. At the end of December, more than half a million
deposit accounts received over $680 billion in additional FDIC
coverage through the transaction account guarantee, and $224
billion in FDIC-guaranteed debt was outstanding.
"The debt guarantee program has been effective in reducing
borrowing spreads and improving access to short- and
intermediate-term funding for banking organizations," Chairman Bair
noted. "In recent weeks, banks have been able to issue debt without
guarantees and other corporate borrowers have issued debt more
frequently and in larger amounts. These are positive signs."
Financial results for the fourth quarter and full year are
contained in the FDIC's latest Quarterly Banking Profile, which was
released today. Among the major findings:
Provisions for loan losses continued to weigh on earnings.
Rising levels of charge-offs and noncurrent loans have required
insured institutions to step up their efforts to increase their
reserves for loan losses. The $69.3 billion in provisions that the
industry added to reserves in the fourth quarter represented over
half (50.2 percent) of its net operating revenue (net interest
income plus total noninterest income), the highest proportion in
any quarter in more than 21 years.
The rising trend in troubled loans persisted in the fourth
quarter. Insured institutions charged off $37.9 billion of troubled
loans, more than twice the $16.3 billion that was charged-off in
the fourth quarter of 2007. The annualized net charge-off rate of
1.91 percent equaled the previous quarterly high set in the fourth
quarter of 1989. The amount of loans and leases that were
noncurrent (90 days or more past due or in nonaccrual status)
increased by $44.1 billion (23.7 percent) during the fourth
quarter. At the end of 2008, a total of 2.93 percent of all loans
and leases were noncurrent, the highest level for the industry
since the end of 1992.
The FDIC's Deposit Insurance Fund reserve ratio fell. A higher
level of losses for actual and anticipated failures caused the
insurance fund balance to decline during the fourth quarter by $16
billion, to $19 billion (unaudited) at December 31. In addition to
having $19 billion available in the fund, $22 billion has been set
aside for estimated losses on failures anticipated in 2009. The
fund reserve ratio declined from 0.76 percent at September 30 to
0.40 percent at year end. The FDIC Board will meet tomorrow to set
deposit insurance assessment rates beginning in the second quarter
of 2009 and to consider adopting enhancements to the risk-based
premium system.
The complete Quarterly Banking Profile is available here.
For more information, visit www.fdic.gov.
