Banks in the United States are having a tough time…and that’s putting it lightly. One in four US banks have announced an unprofitable quarter.
“Friday’s edition of The Wall Street Journal picks up on the theme of the long road of pain ahead for bank shareholders in the US,” colleague Dan Amoss tells us. “In ‘Banks on Sick List Top 400,’ the WSJ details several ugly highlights from the latest FDIC Quarterly Banking Profile, published last Thursday.
“Here are a few:
“1. The FDIC’s Deposit Insurance Fund is now promising to insure $6.2 trillion in deposits with just $10.4 billion in reserves. Expect to see another “special assessment” cutting a few billion dollars out of bank earnings later this year.
“2. Credit card losses are at a record: 9.95%
“3. 416 banks, or 5% of the nation’s banks, are on the ‘problem’ list.
“4. FDIC-insured banks are sitting on $332 billion in loans more than 90 days past due, up from $290 billion in the first quarter.
“5. Nonperforming loans now make up 2.77% of the entire banking industry’s assets. This is up from 1.4% in June 2008 and 0.47% in June 2006. As these loans get ‘worked out’ in today’s credit environment, the market will start to realize how severe net charge-offs will be.
“In this new report, the FDIC published updated figures for the combined noncurrent loans and loan loss allowance at all FDIC-insured institutions. Here is an updated version of the chart we published in the Aug. 14 alert. The new figures – the moves from December 2008 to June 2009 – are highlighted in the dotted lines at the far right of this chart:
“You can see how problem loans are increasing at a much faster rate than the rate at which the banking industry is adding to its loss allowance. This means that published capital ratios are misleadingly high.”
Dan’s latest short idea for Strategic Short Report is building up its loss allowance at a glacial pace compared with its skyrocketing delinquencies and nonperforming assets. Its management team likes to highlight its strong capital ratios. But when adjusted for the inevitable growth in provision expenses – and the leaner operating income that its shrinking balance sheet will generate – its capital ratios looking ahead to mid-2010 don’t look so strong.
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