U.S. bank earnings drop 45.7%

Federally insured banks and thrifts set aside a record $37.1 billion to cover losses from soured mortgages and other loans in the first quarter, when profits were nearly halved, regulators said Thursday.

Federal Deposit Insurance Corp. data show that Citigroup Inc., Bank of America Corp. and about 8,500 other institutions earned a combined $19.3 billion in the January-March period. That was a drop of 45.7% from the $35.6 billion earned a year earlier.

The FDIC has said it would beef up its staff of examiners to handle an anticipated surge in bank failures this year. The agency hopes the industry will begin to turn around by year’s end, FDIC Chairwoman Sheila C. Bair said. Three banks have failed so far this year.

“We’ve been hearing so much bad news; obviously it’s been hitting the banks,” said banking consultant Bert Ely of Alexandria, Va.

Troubled assets -- loans that are 90 or more days past due -- continued to soar in the first quarter, rising to $136 billion, an increase of 24% from last year. The $37.1 billion set aside to cover loan losses was more than four times as great as in the same period a year ago. It was the largest quarterly amount since the FDIC began keeping the statistics in the mid-1980s.

Yet even the record level of reserves that banks salted away against losses didn’t keep pace with the increase in troubled loans, Bair said, calling it “a worrisome trend . . . that gives regulators heartburn.”

She said the agency was urging bank managers “to stay on their toes” and ensure that their reserves were large enough to cover anticipated losses.

The FDIC is keeping a close eye on banks and thrifts with high exposure to the riskiest borrowers and markets, Bair said. Those include sub-prime mortgages and construction loans in overbuilt areas.

The $19.3 billion earned by banks and bank-like thrift and loans (not the same as savings and loans) during the first quarter was an improvement over the fourth quarter of 2007. The FDIC said restatements of fourth-quarter earnings by several institutions slashed the industry’s profits to $646 million, an 89% drop from the previously reported $5.8 billion -- which already was the worst performance in 16 years.