Capital Gold Group Report: U.S. ‘Problem’ Banks Soar, Lending Drops, FDIC Says
By Phil Mattingly
Feb. 23 (Bloomberg) -- U.S. “problem” banks climbed to the highest level in 17 years, signaling failures may accelerate in 2010, the Federal Deposit Insurance Corp. said. Bank lending had the biggest retreat in more than six decades.
The FDIC included 702 banks with $402.8 billion in assets on the confidential list as of Dec. 31, a 27 percent increase from 552 banks with $345.9 billion in assets at the end of the third quarter, the regulator said today in a quarterly report. “Problem” banks account for 8.7 percent of all U.S. lenders.
“The growth in the number and assets of institutions on the problem list points to a likely rise in the number of failures,” FDIC Chairman Sheila Bair said today at a Washington news conference. “Both the problem list and bank failures tend to lag behind economic recovery.”
Regulators are closing banks at the fastest pace since 1992, seizing 20 lenders through seven weeks this year after shutting 140 institutions in 2009 amid loan losses stemming from the collapse of the home and commercial mortgage market. A total of 28 banks failed in 2007 and 2008 combined.
“The pace is going to pick up this year and is going to exceed where we were last year,” Bair told reporters.
Banks showed “incremental” improvement in the fourth quarter, Bair said. Overall profit was $914 million, compared with a $38 billion loss in the year-earlier period. Net charge- offs slowed for a third consecutive quarter, the agency said.
“It’s not that this was a strong quarter,” Bair said. “It’s simply that everything was so bad last year.”
Income Slips
Banks reported combined net income of $12.5 billion for 2009, compared with $4.5 billion in 2008. The industry reported net income of $100 billion in 2007.
Industry lending fell as banks seek to emerge from the worst financial crisis since the Great Depression. Loans fell 7.5 percent in 2009, the largest annual decline since 1942, Bair said.
Sun Trust Banks Inc., the seventh-biggest U.S. bank by deposits, reported commercial lending in 2009 declined 21 percent, or about $8.5 billion, from the previous year, according to a regulatory filing today.
The lending declines reflect tightened standards imposed on borrowers combined with a drop in consumer demand, the FDIC said. Larger institutions accounted for 90 percent of the lending retreat, the agency said.
“The large banks need to step up to the plate” to increase lending, Bair told reporters.
Assets Decline
Industry assets declined 5.3 percent to $731.7 billion for the year, the largest annual drop in the since the FDIC was created more than 75 years ago, the agency said.
Banks, especially smaller community lenders, are “bumping along the bottom” of the credit cycle, Bair said.
“A wrenching experience of this magnitude takes time to get over and while there are signs of improvement it’s still a very difficult time for a lot of institutions,” Eugene Ludwig, chief executive officer at Promontory Financial Group and former Comptroller of the Currency, said today in a Bloomberg Television interview.
Provisions for loan losses fell 14 percent to $61.1 billion in the fourth quarter from the year-earlier quarter, the FDIC said.
The agency insures deposits at 8,012 institutions with $13.1 trillion in assets. The insurance fund is maintained to reimburse customers for deposits of as much as $250,000 when a bank fails.
Insurance Fund Deficit
The insurance fund deficit widened to $20.9 billion from $8.2 billion in the previous quarter, when the account had its first negative balance since 1992. The FDIC last year required banks to prepay three years of premiums, raising $46 billion on Dec. 30, the agency said today. The fourth-quarter balance doesn’t reflect the payments, as premiums are to be phased in each quarter during the next three years, the agency said.
The agency also has the authority to tap a $500 billion credit line with the Treasury Department.
The FDIC may gain power in the overhaul of the financial regulatory system. House and Senate lawmakers are considering expanding the agency’s authority to wind down systemically important, non-bank financial institutions, such as insurer American International Group Inc., which contributed to the collapse of the financial system in 2008.
Bair has requested the power to deal with the failing firms. The House passed a bill giving Bair the new authority while in the Senate, Banking Chairman Christopher J. Dodd, a Connecticut Democrat, is drafting the language of its bill.
A draft of the Senate bill will be put together “in the
coming days,” Dodd said yesterday in Washington.
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