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Banking Is Tanking

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The banking industry is in worse shape than it has been for more than a decade. Losses increased to a 19-year high, failures reached the worst level in 16 years and rising delinquency boosted the number of problem institutions. But losses slowed at thrifts.

Last year, financial institutions insured by the Federal Deposit Insurance Corporation earned $16.1 billion, an FDIC report yesterday said. Earnings tumbled from a revised $100.0 billion reported for 2007 to the lowest level since 1990.

Data from the Office of Thrift Supervision released yesterday indicated that thrifts contributed $13.4 billion in losses last year.

During just the fourth-quarter, FDIC-insured banks and thrifts had a $26.2 billion loss — the first loss since 1990. Earnings crashed from the third quarter, when the sector earned a $1.7 billion profit, and from a year earlier, when an $0.6 billion profit was earned.

Still, more than two-thirds of all FDIC-insured institutions were profitable in the latest period.

OTS noted that thrifts lost $3.0 billion in latest quarter, better than the $4.4 billion third-quarter loss and the $8.8 billion fourth-quarter 2007 loss.

“Despite thrifts’ losses and reduced asset quality, the industry’s financial fundamentals remained solid,” OTS said in the report. “More than 97 percent of thrifts held capital exceeding the ‘well-capitalized’ regulatory standards.”

FDIC said total assets at banks and thrifts were $13.853 trillion at the end of last year, climbing from $13.573 trillion on Oct. 31 and $13.034 trillion on Dec. 31, 2007.

Residential mortgage holdings ended last year at $2.045 trillion, while home-equity lines-of-credit were $0.667 trillion. Non-farm residential holdings finished at $1.066 trillion, and construction-and-development loans were $0.592 trillion.

Delinquency of at least 30 days on all types of mortgages stood at 6.17 percent as of Dec. 31. On just residential loans, delinquency was 7.91 percent, while home-equity loan delinquency was 3.39 percent. Multifamily delinquency ended the period at 2.92 percent.

Delinquency of at least 90 days on all loans and leases was 2.93 percent at yearend — higher than any quarter since 1992.

Fourth-quarter chargeoffs were $37.9 billion, rising from $27.9 billion in the third quarter and $16.3 billion a year earlier, FDIC said. Chargeoffs tied construction and development loans increased 448 percent from a year earlier, while 1-4 residential chargeoffs were up 206 percent.

Deteriorating asset quality was blamed for worsening performance. As charge offs and delinquency grew in the fourth quarter, banks ramped up loan-loss reserves by $69.3 billion — more than double the $32.1 billion set aside a year earlier. The increase represented more than half of operating revenue — the highest proportion in more than 21 years.

For all of last year, the FDIC oversaw 25 bank failures, including 12 during the final quarter. This many institutions have not failed in any year since 1993 — when 50 failures and bailouts occurred.

There were 252 “problem” institutions with $159 billion in assets as of Dec. 31, climbing from 171 banks with $116 billion in assets on Sept. 30. At the end of 2007, there were only 76 troubled institutions with $22 billion in assets.

Included among the “problem” group were 26 thrifts, up from 11 a year earlier, OTS said.

The number of new institutions chartered last year was 98, with just 15 in the fourth quarter — the fewest during any quarter since 1994. At the same time, 292 firms merged with other institutions during 2008, including 78 in the latest quarter.

FDIC said it regulated 8,305 institutions at the end of 2008, including 7,085 banks and 1,220 thrifts. The number fell from 8,384 at the end of the third quarter and 8,534 at the end of 2007 — when FDIC oversaw 7,283 banks and 1,251 thrifts.

OTS said thrifts under its supervision were 810 at the end of last year.

U.S. financial institutions employed 2,152,962 people as of Dec. 31, down from 2,170,931 three months earlier and 2,215,029 a year earlier.

Stung by the rash of failures, FDIC’s Deposit Insurance Fund fell $16 billion to $19 billion at the end of December.

In other earnings news, Wells Fargo & Co. reported earlier this month that it would record an other-than-temporary impairment and take a non-cash charge of $328.4 million for investments in certain perpetual preferred securities. However, the fourth-quarter charge won’t impact earnings because the charges were previously reported as unrealized losses on securities available for sale.

But U.S. financial institutions weren’t the only firms to be stung by the deteriorating economy and housing market.

Fannie Mae — currently operating under the conservatorship of its regulator, the Federal Housing Finance Agency — reported a $25.2 billion fourth-quarter loss. But that was better than Fannie’s third-quarter loss of $29.0 billion

Fannie’s full-year 2008 loss was $58.7 billion — surging from the $2.1 billion loss in 2007.

The First American Corp. reported a $67 million fourth-quarter loss, down from a loss of $68 million a year earlier. Full-year losses at First American were just $26 million, worse than $3 million in 2007.

Amsterdam, Netherlands-based ING reportedly said it had a $4.7 billion fourth-quarter loss.

Unitrin Inc. said earlier this week that an Associated Press story incorrectly stated that subsidiary Fireside Bank suffered subprime mortgage losses during 2007 and 2008 and that more losses on are the way. But Unitrin said it only makes automobile loans and has no mortgages in its portfolio.

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