U.S. Bank Profits Fall To Lowest Since 1991

By Alison Vekshin
Bloomberg News
Wednesday, February 27, 2008

U.S. bank and thrift earnings dropped to the lowest level since 1991 in the fourth quarter, hurt by trading losses and increased reserves for bad loans, the Federal Deposit Insurance Corp. said.

Profit for FDIC-insured institutions was $5.82 billion, an 83 percent decline from the $35.2 billion reported in the fourth quarter of 2006, the regulator said in its quarterly report on the banking industry.

"Weakness in the housing sector and the credit squeeze in financial markets made it a very challenging time," FDIC Chairman Sheila C. Bair said. "We can expect these problems to continue throughout 2008."

Six large lenders accounted for more than half of the year-to-year drop in quarterly profit, the FDIC said.

Funds set aside to cover loan losses grew the most in 20 years to a record $31.3 billion, an increase from $16.7 billion in the third quarter.

Loans 90 days or more delinquent increased the most in the 24 years since FDIC-insured institutions have reported the information, making up 1.4 percent of the industry's loans at the end of the fourth quarter, the FDIC said.

Still, an "overwhelming majority" of banks and thrifts remain well-capitalized and profitable, and "are successfully coping with the challenges they face," Bair said yesterday. Nearly 90 percent of lenders were profitable last year and 99 percent had sufficient capital at the end of the year, she said.

The FDIC plans to "keep a close eye" on loan portfolios beyond housing, including credit cards, commercial real estate and small business, Bair said.

Lenders with assets concentrated in commercial real estate, a "high-risk" area, are under close scrutiny, said John Corston, the FDIC's associate director of large bank supervision.

"The way a lot of these credits are structured, it will take a while for problems to begin to show up on the financial performance of the institutions," Corston said.

Bair also said the agency plans to re-hire former employees to bolster a division that handles bank failures, as the industry faces "uncertain times."

The FDIC managed three shutdowns last year, and 76 institutions are on its "troubled bank" list, Bair said.

The FDIC insures deposits at 8,534 institutions with $13 trillion in assets.

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