FDIC's List of "Problem" Banks Grows to 860

Posted on Wednesday, December 1, 2010

The FDIC said Tuesday that it added 31 banks to its so-called “Problem List,” bringing the total number of institutions under the agency’s watchful eye to 860.
The total assets of banks on the FDIC’s watch list declined, however, from $403 billion to $379 billion. The number of “problem” institutions is the highest since March 31, 1993, when there were 928 and the savings and loan crisis was in full swing.
The FDIC does not release the names of the banks on its watch list, for fear that the stigma attached would cause a run on those banks, and the agency says a “vast majority,” in fact, are able to get back on their feet.
Forty-one insured institutions failed during the third quarter of this year. As of Monday, the 2010 failed-bank tally stood at 149.
The third-quarter additions to the FDIC’s “Problem List” came even as the industry turned a healthy profit and the volume of nonperforming loans declined.
“Resilient revenues and improving asset quality remained a positive combination for insured institution earnings in the third quarter,” the FDIC said in its report.
Net income for the 7,760 insured commercial banks and savings institutions reporting totaled $14.5 billion last quarter. That’s up from a $2 billion aggregate profit a year ago.
Third-quarter net income was below the $21.4 billion reported for the second quarter of this year, but FDIC says
the shortfall was attributable to a $10.4 billion quarterly charge for goodwill impairment at one large institution. Absent this loss, the agency says the industry’s third-quarter earnings would have represented a three-year high.
The FDIC says it is seeing signs of further improvement in loan quality trends. The agency’s latest report shows that the amount of loans and leases that were 90 or more days past due fell for a second consecutive quarter.
Noncurrent balances dropped by $8.3 billion in the third quarter, after falling by nearly $19 billion in the second. Before these two declines, the industry’s noncurrent loan balances had risen for 16 consecutive quarters.
FDIC Chairman Sheila C. Bair said she remains “cautiously optimistic” about the outlook for industry, as lenders continue to work through their bad loans from the housing boom and credit performance improves.
“The industry continues making progress in recovering from the financial crisis,” Bair said. “Lower provisions for loan losses are driving bank earnings by allowing a larger share of revenues to reach the bottom line.”
But Bair was quick to add, “At this point in the credit cycle it is too early for institutions to be reducing reserves without strong evidence of sustainable, improving loan performance and reduced loss rates. When it comes to the adequacy of reserves, institutions should always err on the side of caution.”
The FDIC’s report shows provisions for loan losses totaled $34.9 billion in Q3, the lowest quarterly amount since the fourth quarter of 2007 and $28 billion (44.5 percent) less than insured institutions set aside a year earlier.
Bair also indicated that the end of a two-year period of contraction in loan portfolios may have run its course.
“Total loans and leases held by FDIC-insured institutions declined by just $6.8 billion, or 0.1 percent, in the third quarter,” she said. “Many large banks have had sizable reductions in their loan portfolios over the past couple of years, but in the third quarter, such reductions were notably absent. I hope we are close to seeing genuine increases in loan balances again.”
By: Carrie Bay

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