Meagre $5bn profit for US commercial banks, says FDIC

Federally insured US banks posted total profits of just $5 billion for the second quarter of 2008, an 87% drop on the $31.8 billion earned over the same period in 2007 and the second-worst earnings results since 1991.

The Federal Deposit Insurance Corporation’s (FDIC) Quarterly Banking Profile – which surveys insured commercial banks and savings institutions – found that loan-loss provisions of $50.2 billion were largely to blame for the steep fall, absorbing almost a third of industry operating revenue. In the second quarter of last year, loss provisions were just $11.4 billion.

Earnings erosion was felt more heavily at larger firms, as institutions with assets greater than $1 billion saw average return on assets of just 0.1%, compared with 1.23% a year ago. Institutions below the $1 billion threshold reported return on assets of 0.53%, almost half the 1.1% return recorded in the second quarter of 2007.

More worryingly, 18% of commercial banks were unprofitable over the quarter, up from 9.8% at the same stage last year, with the number of banks on the FDIC’s proprietary “problem list” increasing from 90 to 117 institutions, representing $78.3 billion in assets.

"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 Bair.

Two insured banks failed over the quarter, bringing the total for the first half of 2008 to four. Including non-FDIC insured institutions, however, the regulator recognises nine US bank closures so far this year.

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