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Banks Lost $26 Billion in Fourth Quarter

While many banks remain stable, big losses overshadow the rest

By Mark Huffman
ConsumerAffairs.com

February 26, 2009

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U.S. banks and savings and loans lost a combined total of $26.2 billion in the fourth quarter of 2008, a decline of $27.8 billion from the $57.5 billion that the industry earned in the fourth quarter of 2007 and the first quarterly loss since 1990.

However, by no means were all banks struggling during the period. In fact, the Federal Deposit Insurance Corporation (FDIC) notes that more than two-thirds of all insured institutions were profitable in the fourth quarter, but their earnings were outweighed by large losses at a handful of big banks.

The FDIC says rising losses on loans, losses from trading activities and goodwill write-downs all contributed to the quarterly net loss as banks continue to repair their balance sheets in order to return to profitability in future periods.

Total deposits increased by $307.9 billion, or 3.5 percent, the largest percentage increase in 10 years, with deposits in domestic offices registering a $274.1 billion increase, a move that reflects consumers' newfound preference to save. And at year-end, nearly 98 percent of all insured institutions, representing almost 99 percent of industry assets, met or exceeded the highest regulatory capital standards.

FDIC notes the outlook is far from bleak.

"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."

For all of 2008, insured institutions earned $16.1 billion, a decline of 83.9 percent from 2007 and the lowest annual total since 1990. Twelve FDIC-insured institutions failed during the fourth quarter and one banking organization received assistance. During the year, a total of 25 insured institutions failed.

The FDIC's "Problem List" grew during the quarter from 171 to 252 institutions, the largest number since the middle of 1995. Total assets of problem institutions increased from $115.6 billion to $159 billion.

In its latest release, the FDIC cited deteriorating asset quality — the value of mortgaged-backed securities or actual real estate, for example — as the primary reason for the drop in industry profits. Loan-loss provisions totaled $69.3 billion in the fourth quarter, a 115.7 percent increase from the same quarter in 2007.

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