Newspaper article THE JOURNAL RECORD

Nation's Commercial Banks Earned $5.9 Billion in Third Quarter of '88

Newspaper article THE JOURNAL RECORD

Nation's Commercial Banks Earned $5.9 Billion in Third Quarter of '88

Article excerpt

WASHINGTON (AP) - The nation's commercial banks enjoyed record profits in the July-September quarter, but a top regulator sounded a cautionary note Monday about an increase in bad loans and rising bank involvement in leveraged corporate buyouts.

The Federal Deposit Insurance Corp. said the 13,239 federally insured commercial banks earned $5.9 billion in the third quarter, topping the previous record of $5.8 billion in the same quarter last year.

``I think we can say without much question that this year will be an all-time high for banking profits,'' FDIC Chairman L. William Seidman told reporters.

The current record of $18.1 billion was set in 1985. Last year, banks earned only $3.6 billion, the least profitable year since the Depression, as they added heavily to reserves for losses on Third World debt.

Banks earned $16.4 billion for the first nine months of 1988, and several one-time factors should help boost profits for the full year above $23 billion, the FDIC said.

When results are calculated for the entire year, a $2.3 billion loss by First RepublicBank of Dallas in the first half will be removed. In effect, the red ink is being transferred to the government's books in one of the largest rescues ever of a failed bank.

Also, bank earnings will rise by $1.5 billion in the fourth quarter because Brazil resumed payments on its huge foreign debt.

``The statistics are good, but they're not quite as good as they might appear on the surface,'' Seidman said.

Bad loans, on which borrowers have stopped making payments, jumped 4.3 percent from the second quarter to $76.5 billion in the third. Much of the increase came in the Southwest, where the economy has been depressed by troubles in the oil industry.

However, bad real estate loans in the New England states, New Jersey and Florida also rose.

``We try to spot things early and the early evidence is that we need to keep a careful eye on that,'' Seidman said. ``... But they are not, I repeat not, at alarming levels and not like the Southwest. …

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