Bank profits fell to yearly low during Q3

Posted: November 24, 2010 in Banks, Failures, FDIC
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Bank profits totaled $14.5 billion in the three-month period that ended Sept. 30, a  decrease from $21.6 billion reported in the 2nd quarter, according to the FDIC. report. That is a 33% decline quarter over quarter.

U.S. banks posted their smallest profit since the fourth quarter of last year after one of the nation’s biggest lenders took a $10.4 billion writedown, the Federal Deposit Insurance Corp. said. Bank of America Corp.’s card services reported a $9.87 billion loss compared with a $955 million loss a year earlier because of a goodwill charge of $10.4 billion.

860 banks are listed as problem banks, those at great risk of failure, the highest number in 17 years. Asset size for these problem banks were listed at $379.2 billion according to FDIC.

“Credit performance has been improving, and we remain cautiously optimistic about the outlook,” FDIC Chairman Sheila Bair said in a statement. “It is too early for institutions to be reducing reserves without strong evidence of sustainable, improving loan performance and reduce loss rates.”

Loan-loss reserves declined for the first time since the fourth quarter of 2006, the FDIC said. Total reserves fell by $9.6 billion, as large banks reduced loan-loss provisions, the agency said.

The deficit at the agency’s deposit insurance fund narrowed to $8 billion during the third quarter from $15.2 billion.

While the deficit has narrowed, the burden of additional assessments is still impacting the smaller banks whose profits are being wiped out. That is probably why you are seeing a more orderly shutdown of bank which puts an additional financial burden on the FDIC deposit insurance.

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