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The second quarter 2009 Quarterly
Banking Profile has some interesting charts and facts that inquiring
minds will be interested in.
Insured Institution Performance
- Higher Loss Provisions Lead to a $3.7 Billion Net Loss
- More Than One in Four Institutions Are Unprofitable
- Charge-Offs and Noncurrent Loans Continue to Rise
- Net Interest Margins Show Modest Improvement
- Industry Assets Decline by $238 Billion
- The Industry Posts a Net Loss for the Quarter
The Industry Posts a Net Loss for the Quarter
Burdened by costs associated with rising levels of troubled loans and falling
asset values, FDIC-insured commercial banks and savings institutions reported
an aggregate net loss of $3.7 billion in the second quarter of 2009. Increased
expenses for bad loans were chiefly responsible for the industry's loss.
Insured institutions added $66.9 billion in loan-loss provisions to their
reserves during the quarter, an increase of $16.5 billion (32.8 percent)
compared to the second quarter of 2008. Quarterly earnings were also adversely
affected by writedowns of asset-backed commercial paper, and by higher assessments
for deposit insurance.
Almost two out of every three institutions (64.4 percent) reported lower
quarterly earnings than a year ago, and more than one in four (28.3 percent)
reported a net loss for the quarter. A year ago, the industry reported a
quarterly profit of $4.7 billion, and fewer than one in five institutions
(18 percent) were unprofitable. The average return on assets (ROA) was -0.11
percent, compared to 0.14 percent in the second quarter of 2008.
Net Charge-Off Rate Sets a Quarterly Record
Net charge-offs continued to rise, propelling the quarterly net charge-off
rate to a record high. Insured institutions charged-off $48.9 billion in
the second quarter, compared to $26.4 billion a year earlier. The annualized
net charge-off rate in the second quarter was 2.55 percent, eclipsing the
previous quarterly record of 1.95 percent reached in the fourth quarter of
2008.
The $22.5 billion (85.3 percent) year-over-year increase in net charge-offs
was led by loans to commercial and industrial (C&I) borrowers, which
increased by $5.3 billion (165.0 percent). Net charge-offs of credit card
loans were $4.6 billion (84.5 percent) higher than a year earlier, and the
annualized net charge-off rate on credit card loans reached a record 9.95
percent in the second quarter. Net charge-offs of real estate construction
and development loans were up by $4.2 billion (117.0 percent), and charge-offs
of loans secured by 1-4 family residential properties were $4.0 billion (41.1
percent) higher than a year ago.
Noncurrent Loan Rate Rises to Record Level
The amount of loans and leases that were noncurrent (90 days or more past
due or in nonaccrual status)increased for a 13th consecutive quarter, and
the percentage of total loans and leases that were noncurrent reached a new
record.
Institutions Continue to Add to Reserves
The industry's reserves for loan losses increased by $16.8 billion (8.6
percent) during the second quarter, as loss provisions of $66.9 billion exceeded
net charge-offs of $48.9 billion. The ratio of reserves to total loans and
leases set another new record, rising from 2.51 percent to 2.77 percent.
However, the pace of reserve building fell short of the rise in noncurrent
loans, and the industry's ratio of reserves to noncurrent loans fell from
66.8 percent to 63.5 percent, the lowest level since the third quarter of
1991.
"Problem List" Expands to 15-Year High
The number of insured commercial banks and savings institutions reporting
financial results fell to 8,195 in the quarter, down from 8,247 reporters
in the first quarter. Thirty-nine institutions were merged into other institutions
during the quarter, twenty-four institutions failed, and there were twelve
new charters added.
During the quarter, the number of institutions on the FDIC's "Problem List" increased
from 305 to 416, and the combined assets of "problem" institutions rose
from $220.0 billion to $299.8 billion. This is the largest number of "problem" institutions
since June 30, 1994, and the largest amount of assets on the list since December
31, 1993.
FDIC Problem Institutions At 15 Year High
Troubled Loans Still Growing But At Slower Pace
Provision Expenses As Percent Of Operating Revenue
Noncurrent Loan Growth Outpaces Reserve Growth
Fed Fails To Recapitalize Banks
In spite of mammoth injections of cash by the Fed, huge efforts by banks to
raise capital, a Fed swap-o-rama of biblical proportions, monetary printing
by the Fed, and capital injections from the Treasury, and a massive 50% stock
market rally, noncurrent loan growth still outpaces reserve growth.
Excess Reserves Revisited
Let's review Creative
Destruction
Reluctance to lend can easily be seen in a chart of bank reserves.
Excess Reserves of Depository Institutions
Conventional wisdom regarding money supply suggests there is massive pent
up inflation in the works as a result of the buildup of excess reserves. The
rationale is that 10 times those excess reserves (via fractional reserve lending)
will soon be working its way into the economy causing huge price spikes, a
collapse in the US dollar, and possibly even hyperinflation.
The reality is excessive debt and falling asset prices have rendered the best
efforts of the Fed impotent.
Banks are not well capitalized, they are insolvent, unwilling and unable to
lend.
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