Magazine article Mortgage Banking

Banks, Thrifts Report Earnings Drain in 2Q

Magazine article Mortgage Banking

Banks, Thrifts Report Earnings Drain in 2Q

Article excerpt

Commercial banks, savings institutions and thrifts regulated and insured by the government posted a significant decline in earnings during the second quarter of 2008, prompting regulators to consider options to bolster its financial backstop measures.

The Federal Deposit Insurance Corporation (FDIC) reported in late August that commercial banks and savings institutions pulled in net income of $5 billion in the second quarter of 2008, a decline of $31.8 billion or 86.5 percent from the $36.8 billion that the industry earned in the second quarter of 2007.

With the exception of the fourth quarter of 2007, the second-quarter reported earnings were the lowest for the industry since the fourth quarter of 1991, according to FDIC Chairman Sheila C. Bair.

"By any yardstick, it was another rough quarter for bank earnings, but the results were not unexpected as the industry coped with financial market disruptions, the housing slump, worsening economic conditions and the overall downturn in the credit cycle," said Bair.

The FDIC's "problem list" grew to 117 institutions from 90 at the end of the first quarter--the largest number on the list since the middle of 2003. Total assets of problem institutions increased from $26 billion to $78 billion, with $32 billion coming from the July failure of Indymac Bank FSB, Pasadena, California, according to the FDIC.

"More banks will come on the list as credit problems worsen," Bair added. "Assets of problem institutions also will continue to rise."

Meanwhile, the Office of Thrift Supervision (OTS) also reported in late August that the thrift industry posted a $5.4 billion loss for the second quarter of 2008, as institutions set aside record reserves for loan losses during the continued housing market downturn.

During the second quarter, thrifts set aside $14 billion in loan-loss provisions, the highest total on record. During the last four quarters, the industry has added more than $30 billion to loan-loss reserves, driving down earnings but providing a cushion against the impact of rising loan delinquencies and other problem assets, according to the OTS.

The net loss during the second quarter was the second largest on record after the $8. …

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