Banks post $26.2-billion quarterly loss
The U.S. banking industry spewed red ink to the tune of $26.2 billion in the last three months of 2008, the first such quarterly loss since 1990 during the savings and loan crisis, the federal government reported Thursday.
It was the largest quarterly loss since the Federal Deposit Insurance Corp. began reporting industry statistics in 1984 -- and more pain lies ahead.
In reporting the collective loss for the roughly 8,300 banks and savings institutions whose deposits it insures, the FDIC said its “problem list” -- a top-secret tally of institutions in hot water -- grew during the fourth quarter from 171 to 252, the largest number since 1995.
The industry’s huge loss in the fourth quarter compared with a relatively tiny profit of $575 million a year earlier.
The industry’s nose-dive is apparent in the number of failed banks as well. A total of 25 insured institutions went under last year, compared with three in 2007 and none in 2006 and 2005.
So far this year, 14 banks have collapsed, including three in California: 1st Centennial Bank of Redlands, Alliance Bank of Culver City and County Bank of Merced.
For all of 2008, FDIC-insured institutions earned $16.1 billion, a decline of 84% from 2007 and the lowest annual total since 1990.
A tsunami of loan losses, toxic securities stuck on balance sheets and write-downs of intangible assets such as goodwill accounted for the losses, FDIC chief Sheila Bair said.
Despite the industrywide loss, more than two-thirds of all insured institutions were profitable in the fourth quarter, Bair said. And total deposits actually increased by $307.9 billion, or 3.5%, the largest percentage increase in 10 years, as businesses worried about the economy hoarded cash and as investors hit by stock losses turned to the security of FDIC-backed deposits.
“Clearly, people see an FDIC-insured account as a safe haven for their money in difficult times,” Bair said.
The quarterly loss was only the sixth loss recorded since the FDIC began reporting industry data in 1984. The previous record deficit was $11.9 billion for the second quarter of 1987.
The industry is likely to incur more losses this year, said Gerard Cassidy, a banking analyst at RBC Capital Markets. But he said he didn’t expect them to be as big as in the latest quarter, in part because banks, pressured by regulators and their auditors, “threw in everything but the kitchen sink” in acknowledging losses for that period.
Executive compensation also may have encouraged the reporting of losses.
“These guys realized 2008 wasn’t a year when they were going to earn bonuses,” Cassidy said. “So they kitchen-sink the quarter to start the following year in better shape in hopes that 2009 will be a bonus year.”
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