•`Problem' U.S. Banks Rise to 15-Year High as FDIC's Insurance Fund Erodes

Discussion in 'Wall St. News' started by ByLoSellHi, May 27, 2009.

  1. •`Problem' U.S. Banks Rise to 15-Year High as FDIC's Insurance Fund Erodes


    U.S. ‘Problem’ Banks Rise to 15-Year High, FDIC Says (Corrects)

    By Margaret Chadbourn and Alison Vekshin

    (Corrects wording in 14th paragraph to show rise in bank capital, rather than total.)

    May 27 (Bloomberg) --
    U.S. “problem” banks climbed 21 percent to the highest total in 15 years in the first quarter as provisions set aside for loan losses weighed on earnings, the Federal Deposit Insurance Corp. said.

    The FDIC classified 305 banks as “problem” and their total assets rose 38 percent to $220 billion, the highest since 1993, the agency said without identifying any lender. The FDIC said its insurance fund slumped 25 percent to the lowest level in 15 years.

    “The banking industry still faces tremendous challenges,” FDIC Chairman Sheila Bair said today at a briefing in Washington. “Asset quality remains a major concern.”

    Regulators have taken over 36 lenders this year, including BankUnited Financial Corp. in Florida on May 21 and Silverton Bank of Atlanta on May 1, which combined cost the FDIC’s deposit insurance fund $6.2 billion. Twenty-one banks collapsed in the quarter, the most since late 1992, as the pace of failures accelerated amid the worst crisis since the Great Depression.

    Bair today said the agency is “actively working” on guidelines to encourage private-equity firms to bid for failed banks, after BankUnited was bought May 21 by a group including WL Ross & Co. and Carlyle Group. The FDIC sold IndyMac Bank in January to investors led by Steven Mnuchin, a former executive at Goldman Sachs Group Inc., and buyout firm J.C. Flowers & Co.

    “I am comfortable with the transactions we’ve done so far, but I think we need to have some guidelines,” Bair said.

    Loan Losses

    Funds set aside by banks to cover loan losses rose 64 percent to $60.9 billion in the first quarter from $37.2 billion in the year-earlier quarter. Bair said 97 percent of banks were “well-capitalized” at the end of the first quarter.

    “Banks are taking prudent actions to set aside reserves and build more capital because they know they need to be prepared for problems over the next couple of quarters,” said James Chessen, chief economist for the American Bankers Association in Washington.

    The insurance fund, generated by fees paid by banks, fell to $13 billion from $17.3 billion in the previous quarter, and failures in the quarter cost the fund $2.2 billion, the FDIC said. The FDIC imposed an emergency fee to raise $5.6 billion to rebuild the fund, with more assessments possible this year. The agency forecasts failures will cost $70 billion through 2013.

    JP Morgan Chase & Co. today estimated it will pay $700 million to $750 million as its share of the FDIC one-time assessment.

    ‘Problem’ Assets

    Banks classified as “problem” based on measures including asset quality, earnings and liquidity accounted for 1.62 percent of total assets, up from 1.14 percent in the fourth quarter. Regulators rate banks on a scale, with 1 being the highest and 5 the lowest. A bank rated 4 or 5 is classified as a “problem.”

    FDIC-insured banks had net income of $7.6 billion in the first quarter compared with a $36.9 billion loss in the fourth as trading revenues at larger banks increased. The FDIC said 22 percent of U.S. banks had a net loss and 59 percent reported lower net income compared with a year earlier.

    Industry earnings were the highest in four quarters, the FDIC said. Citigroup Inc. reported a $1.6 billion first quarter profit on April 17 after five consecutive quarterly losses. JPMorgan, Goldman Sachs Group Inc., and Wells Fargo & Co. also beat analysts’ expectations with quarterly gains.

    Bank capital rose by $82.1 billion, the biggest three-month gain since the third quarter of 2004, with most of the increase coming from a “relatively small” number of lenders including recipients of U.S. aid, the FDIC said. “The good news is that banks have been able to raise a lot of new capital even before taking a more aggressive steps to cleanse their balance sheets,” Bair said.

    The FDIC insures deposits at 8,246 institutions with $13.5 trillion in assets. The agency reimburses customers for deposits of as much as $250,000 when a bank fails.

    To contact the reporters on this story: Margaret Chadbourn in Washington at mchadbourn@bloomberg.net; Alison Vekshin in Washington at avekshin@bloomberg.net.
    Last Updated: May 27, 2009 13:59 EDT
  2. S2007S


    Just last week the FDIC lent out another $5 BILLION


    Registered: Aug 2006
    Posts: 8429

    05-22-09 08:52 AM

    FDIC is going to need a bailout sooner or later, who is going to pay for that.....................

    BankUnited Fails, Will Cost FDIC $4.9 BILLION
    Joe Weisenthal|May. 21, 2009, 6:26

    After several tense days, during which Florida bank BankUnited scrambled to raise capital or sell itself, it has been shut down, put into receivership and sold to investors that include Wilbur Ross and the Carlyle Group.

    It is the biggest bank failure of 2009 and it will cost the stretched FDIC $4.9 billion.

    The FDIC's full announcement is here.

    So how does the biggest bank failure since IndyMac square with what's putatively a stabilizing or "healing" banking sector, with a LIBOR rate that's returned to pre-crisis levels? Easy. The government is backing the entire thing up, and even with this failure (which the FDIC calls the "least costly" approach), bank investors are being ring-fenced and backstopped to all get out.

    When the training wheels come off the sector, then we can get some clue about what's stabilizing, but in the meantime, events like these aren't very promising.