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Bank Charge-offs Surge 55% in 2001 According to Weiss Ratings

No End in Sight as Nonperforming Loans Continue to Climb

PALM BEACH GARDENS, FL (April 22, 2002) -- The U.S. banking industry's net loan charge-offs grew by an alarming 55 percent in 2001, according to Weiss Ratings, Inc., the nation's leading independent provider of ratings and analyses of financial services companies, mutual funds and stocks.

At year-end, loan charge-offs, the loss banks take when borrowers default, jumped to a record $38.8 billion, an increase of $13.7 billion over the $25.1 billion charged off in 2000. Moreover, charge-offs in 2001 surpassed the previous record of $37.7 billion set 10 years ago during the 1991 S&L crisis.


                     Net Charge-offs in $ Billions
1991 37.7
1992 29.5
1993 21.5
1994 14.3
1995 14.4
1996 17.8
1997 20
1998 22.2
1999 21.5
2000 25.1
2001 38.8


This surge in net charge-offs was fairly widespread, with 4,146 banks and thrifts, or 43.1 percent of the industry, registering an increase. Institutions showing the largest year-over-year jump include:

                            Weiss        Net Loan Charge-offs ($Mil)
Safety %
Rating 2001 2000 Change Change
------ ---- ---- ------ ------
-- US Bank NA
Cincinnati, Ohio B- 1,678 196 1,482 757.18
-- Bank of America NA
Charlotte, N.C. B- 3,495 2,016 1,479 73.36
-- Citibank NA
New York, N.Y. B- 2,700 1,555 1,145 73.63
-- PNC Bank NA
Pittsburgh, Pa. B 945 133 812 610.53
-- Bank One NA
Chicago, Ill. C 1,167 374 793 212.03
Weiss Safety Rating: A = Excellent; B = Good; C = Fair; D = Weak; E = Very Weak

"If most banks would bite the bullet and recognize most of their nonperforming loans, we wouldn't be nearly as concerned," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings. "However, nonperforming loans also rose sharply, implying still another round of large charge-offs in 2002."

Nonperforming Loans Climb Even Further
Nonperforming loans at banks and thrifts jumped 28.1 percent in 2001, to $62.5 billion from $48.8 billion in 2000. This exceeds the 26.6 percent rise experienced in 2000, following a relatively small 2.9 percent increase in 1999. As a result, nonperforming loans accounted for 9.43 percent of the industry's capital and reserves year-end, the highest level in eight years, as illustrated below:


Non-Performing Loans as a % of Core Capital & Reserves
1994 9.27
1995 8.63
1996 7.99
1997 7.26
1998 7.05
1999 6.71
2000 7.89
2001 9.43


Industry Posts Record Profits, Although Inflated by Sales of Securities
Despite a sizable increase in provisions for future loan losses, banks and thrifts posted a record profit of $87.5 billion in 2001, up 6.8 percent from the $81.9 billion profit in 2000. In analyzing the industry's record profitability, however, Weiss noted that profits were inflated by $5.1 billion in nonrecurring gains from the sale of securities.

Excluding these securities transactions, industry profits amounted to $82.4 billion, a 1.6 percent decline from the adjusted $83.8 billion recorded in the previous year. Institutions showing the largest year-to-year increase in net income before securities gains included:

                            Weiss        Net Income/Loss ($Mil)
Safety before Securities Gains
Rating 2001 2000 $ Change % Change
------ ---- ---- -------- --------
-- Bank One NA
Chicago, Ill. B- 1,341 -204 1,545 n.m.
-- Wells Fargo Bank NA
San Francisco, Calif. B- 2,615 1,597 1,018 63.7%
-- Washington Mutual Bk, FA
Stockton, Calif. C+ 2,373 1,691 682 40.3%
-- Citibank NA
New York, N.Y. B- 5,014 4,413 601 13.6%
-- Chase Manhattan Bk USA NA
Newark, Del. C 854 269 585 217.5%


"Banks are fortunate that this past year's interest rate drops allowed them to mitigate their earnings shortfall through the sale of securities. Plus, mortgage lenders were able to book generous fee revenues from the wave of new and refinanced mortgages," continued Dr. Weiss. "With interest rates now at rock bottom, however, don't expect these two factors to prop up the industry again in 2002."

Notable Upgrades and Downgrades
In evaluating the nation's 9,612 commercial banks, savings banks, and savings and loans, Weiss Ratings recently issued the following notable upgrades:

	   --  Capital One Bank         Glen Allen, Va.        from D+ to C-
-- Household Bank SB NA Las Vegas, Nev. from C+ to B-
-- First Midwest Bank Buffalo Grove, Ill. from C+ to B-
Notable downgrades include:
-- Allfirst Bank Baltimore, Md. from B to C-
-- Firstmerit Bank NA Akron, Ohio from B- to C+
-- Key Bank USA NA Cleveland, Ohio from B- to C


Weiss issues safety ratings on more than 15,000 financial institutions, including banks and thrifts, HMOs, life and health insurers, Blue Cross Blue Shield plans, property and casualty insurers, and securities brokers.

Weiss also rates the risk-adjusted performance of more than 11,000 mutual funds and 9,000 stocks. Weiss Ratings is the only major rating agency that receives no compensation from the companies it rates. Revenues are derived strictly from sales of its products to consumers, businesses and libraries.
MortgageDaily.com
Source:
Weiss Ratings, Inc.
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