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Number of Ailing Banks Falls as Earnings Reach 5-Year High, F.D.I.C. Says

By THE ASSOCIATED PRESS


Bank earnings rose in the first quarter to the highest level in nearly five years, and the number of troubled banks fell for the fourth consecutive quarter, the Federal Deposit Insurance Corporation said on Thursday.

The mostly positive report illustrated how far the banking industry had come since the 2008 financial crisis. Still, the report noted that many banks remained cautious about lending, a necessary driver of economic growth.

The report is “broadly in line with what we’ve seen in the economy as a whole,” said Bert Ely, an independent banking analyst based in Alexandria, Va. “Sluggish improvement, but nonetheless improvement.”

The F.D.I.C. said the banking industry earned $35.3 billion in the quarter, compared with $28.7 billion in the period a year earlier. It was the highest level since the second quarter of 2007.

About 67 percent of banks reported improved earnings. Overall revenue increased from the first quarter of 2011, bolstered by higher profits from loans and fees on customers’ bank accounts.

The news was not all good. Bank loans to consumers fell in most categories. Credit card loans and home mortgages were among those showing lower balances.

The agency’s acting chairman, Martin J. Gruenberg, called the decrease in lending “disappointing, after we saw three quarters of growth last year.”

Weakness in the housing market has weighed on broader lending, said James Chessen, chief economist of the American Bankers Association, the industry’s biggest trade group.

“The overall lending volume for banks will continue to grow at a gradual pace until the housing market improves,” Mr. Chessen said in a statement.

An exception is loans to commercial and industrial borrowers. Those rose about 14 percent from a year earlier, which suggests that businesses were expanding.

Banks with assets exceeding $10 billion accounted for most of the earnings growth in the January to March period. While they make up just 1.4 percent of banks, they accounted for 81 percent of the earnings.

They include Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. Most of them have recovered with help from federal bailout money and record-low borrowing rates.

The number of banks on the F.D.I.C.’s confidential “problem” list fell in the first quarter to 772, or about 9.5 percent of all federally insured banks. That compares with 813 troubled banks in the fourth quarter.

The surge in first-quarter earnings came after the industry’s most profitable year since 2006, a sign that many banks have put the 2008 financial crisis behind them. Still, last year’s increase came largely because banks suffered fewer losses — not because they took in more money.

The slow recovery, record-low interest rates and weak demand for loans left bank revenue mostly flat for the year.

Banks are starting to take in more money this year. The industry posted a 3 percent increase in revenue from a year earlier. It was only the second time in the last five quarters that revenue rose, the F.D.I.C. said.

Bank losses on loans declined in the January to March period to $21.8 billion — the lowest level in four years.

http://www.nytimes.com/2012/05/25/business/economy/fewer-ailing-banks-as-earnings-rise-fdic-says.html?ref=business&pagewanted=print