Banks on FDIC Problem List Up 36%

Today the FDIC reported the number of "insured institutions" (banks) that are on their "Problem List" as of the end of June 2009 grew 36% to 416. This is the highest number in 15 years. On March 31, 2009 there were only 305 insured institutions on the list.

• Total assets of "problem" institutions increased during the quarter from $220.0 billion to $299.8 billion, the highest level since December 31, 1993.

The FDIC also reported reserves totaling $42 billion with $32 billion already committed to future closures leaving "only" $10B for troubled banks that have yet to fail.

• Total reserves of the Deposit Insurance Fund (DIF) stood at $42 billion.
  
• The contingent loss reserve, which totaled $28.5 billion on March 31, rose to $32.0 billion as of June 30, reflecting higher actual and anticipated losses from failed institutions.
  
• Additions to the contingent loss reserve during the second quarter caused the fund balance to decline from $13.0 billion to $10.4 billion.
  
• Combined, the total reserves of the DIF equaled $42.4 billion at the end of the quarter.

FDIC hairman Sheila Bair had some words of optimism in the press release:

• "While challenges remain, evidence is building that the U.S. economy is starting to grow again."
  
  
• "The banking industry, too, can look forward to better times ahead."
  
  
• "But, for now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry's bottom line."
  
  
• "The FDIC was created specifically for times such as these. No matter how challenging the environment, the FDIC has ample resources to continue protecting depositors as we have for the last 75 years. No insured depositor has ever lost a penny of insured deposits...and no one ever will."

FDIC & NCUA Insurance Limits Extended to 2013

On May 20, President Obama signed a law the Helping Families Save Their Homes Act of 2009. The law expands the reach of the Administration’s Making Home Affordable Programs, improves the Federal Housing Administration’s Hope for Homeowners program and streamlines how HUD supports thousands of homeless support programs across America. Also important to CD investors is the law includes provisions that extend the $250,000 FDIC & NCUA deposit insurance limit to December 31st, 2013.

Last year when the financial crisis began, FDIC and NCUA deposit insurance was temporarily increased from $100,000 to $250,000 until the end of this year to help the banks. The bulk of the the "Helping Families Save Their Homes Act of 2009" bill dealt with mortgages and foreclosures, so higher deposit insurance took a back seat in terms of limelight.

If $250,000 of coverage isn't enough and you don't feel like opening up numerous bank accounts, then you can always $50 million in FDIC insurance through the CDARS program but that comes at a price.

FDIC Problem Bank List up 47% to 252 Banks

Today Sheila Bair, chairwoman of the FDIC, said the "Problem List" of troubled banks currently includes 252 banks with assets of $159B. This is up 47% from the third quarter of 2008 when the list stood at 171 banks.

She said this is one of the most difficult periods in the FDIC's 75 year history of operation.

In 2008 there were 292 bank mergers, 25 bank failures, 5 FDIC "assistance transactions." The 25 bank failures was the largest number since 1993.

There are now a total of 8,305 FDIC insured banks and savings and loans.

The banking industry lost $26.2 Billion in the fourth quarter of 2008. Worst since 1990.

Full year net income was down 84% to $16.1B, also the lowest since 1990.

FDIC reserve for bank failures fell by $16B and now stands at $19B.

The FDIC may ask for a special assessment on the industry banks to recharge their reserves.

The good news was Domestic Deposits Increased by 3.8 Percent

"Public confidence in the banking system and deposit insurance is demonstrated by the increase in domestic deposits during the fourth quarter," FDIC Chairman Sheila Bair said. "Clearly, people see an FDIC-insured account as a safe haven for their money in difficult times."

The FDIC does not name names on this list of "troubled banks" to reduce the odds of a run on those banks.

FDIC List of Problem Banks

List of Banks in Danger of Failure Soars: On Tuesday, August 26, 2008 the Federal Deposit Insurance Corporation (FDIC www.fdic.gov) announced in its quarterly banking report that their list of "problem banks" (see "Problem List" below) for the second quarter of 2008 increased 30% from to 117 financial institutions. The 117 institutions on the problem list is the largest number since the middle of 2003. Total assets of institutions on the problem list increased 200% from $26 billion to $78 billion. $32 billion of this $56 gain came from IndyMac Bank, F.S.B., Pasadena, CA, which failed in July.

Reported net income of member institutions fell 86.5% or $31.8 billion to only $5.0 billion, the lowest earnings for the industry except for the fourth quarter last year (2007) and the fourth quarter of 1991.

"By any yardstick, it was another rough quarter for bank earnings, but the results were not unexpected as the industry coped with financial market disruptions, the housing slump, worsening economic conditions and the overall downturn in the credit cycle." said FDIC Chairman Sheila C. Bair.

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Other major findings in the FDIC's latest Quarterly Banking Profile include:

Provisions for loan losses continue to be the main cause of falling earnings.

"Rising levels of troubled loans, particularly in real estate portfolios, led many institutions to increase their provisions for loan losses in the quarter. Loss provisions totaled $50.2 billion, more than four times the $11.4 billion the industry set aside in the second quarter of 2007. Almost a third of the industry's net operating revenue (net interest income plus total noninterest income) went to building up loan-loss reserves."

Noncurrent loans are up 20% to 2.04% of all loans. The number continues to rise quickly to the highest level since 1993.

"The amount of noncurrent loans and leases (90 days or more past due or in nonaccrual status) increased by $26.7 billion during the second quarter, following a $26.2 billion increase in the first quarter and a $27.0 billion increase in the fourth quarter of 2007. Almost 90 percent of the increase in noncurrent loans and leases in the last three quarters consisted of real estate loans, but noncurrent levels have been rising in all major loan categories. "

Assets of insured member institutions declined.

"Total assets of FDIC-insured institutions declined during the quarter for the first time since 2002. The $68.6 billion (0.5 percent) decline was caused by a reduction in trading assets at a few large banks. Assets in trading accounts, which increased by $135.2 billion in the first quarter, declined by $118.9 billion (11.8 percent) in the second quarter. In addition, the industry's holdings of one- to four-family residential mortgage loans fell by $61.4 billion (2.8 percent). Real estate construction and development loans declined for the first time since 1997, falling by $5.4 billion (0.9 percent)."

The FDIC's Deposit Insurance Fund reserve ratio fell.

"Due to a significant increase in loss reserves, including reserves for failures that have occurred since June 30th, the DIF balance fell to $45.2 billion at the end of the second quarter, down from $52.8 billion at the end of the first quarter. While insured deposits rose only 0.5 percent during the quarter, the decline in the fund balance caused the reserve ratio to fall to 1.01 percent as of June 30th from 1.19 percent one quarter earlier. Because the reserve ratio is now below 1.15 percent, the Federal Deposit Insurance Reform Act of 2005 requires the FDIC to develop a restoration plan that will raise the reserve ratio to no less than 1.15 percent within five years."

Problem List: The FDIC does not make its list of member institutions in danger of failing public because it does not want to contribute to a "run on the bank" by concerned depositors. One indication a bank may be on the list is they pay very high CD rates in an attempt to attract capital. Richard (Dick) Bove of Landenburg Thalmann has a methodology for estimating what banks are in trouble.

See Dick Bove's List of Banks In Danger of Failing

IndyMac Bankcorp was at the top of Bove's list before it failed based on non performing assets as a percentage of equity.

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