The Federal Deposit Insurance Corp.'s list of problem banks ballooned nearly 50% as banks profits nearly evaporated in the third quarter, as the credit crisis reached its boiling point, the agency said Tuesday.
Net earnings of commercial bank and savings institutions under the FDIC's protection totaled just $1.7 billion in the third quarter, down 94% from a year earlier, according to the FDIC's quarterly banking report, which was released Tuesday. The quarter was the second weakest, following the fourth quarter of 2007, since 1990, according to the agency.
There are roughly 171 banks, up from 117 institutions, with a combined total of $115.6 billion in assets under the FDIC's watch currently, according to the report. But FDIC Chairwoman Shelia Bair said at a press conference in Washington, D.C. that "most banks remain well-capitalized, profitable, and sound."
"It's not news to any of us that we've had profound problems in our financial markets that are taking a rising toll on the real economy," Bair said."
Tuesday's report reflects those challenges. As we had expected industry earnings for the third quarter were substantially below the prior year."
Bair continued that while many large institutions continue to post losses "due to weaknesses in their portfolios," the FDIC is "now seeing losses spread to a growing number of smaller institutions."
Of the 22 failed institutions this year, nine of which occurred in the third quarter. The list includes
-- the largest failure on record -- which was seized by regulators in September. WaMu, which had $307 billion in assets, was sold to
for roughly $2 billion. Another 73 institutions were acquired, bringing the total number of firms protected by the FDIC to 8,384 as of Sept. 30.
Last month, the wave of acquisitions of troubled banks continued. Several other banks also on the brink of failure agree to be sold.
agreed to sell itself to
, after the San Francisco-based bank trumped
original offer for the Charlotte, N.C. lender's banking operations. Late last month, another troubled bank,
( NCC), sold itself to
PNC Financial Services
on Monday joined the widening list of banks to require a government bailout, when Treasury agreed to inject another $20 billion in preferred equity from the Troubled Assets Relief Program, on top of an earlier $25 billion investment. Federal regulators also agreed to backstop $306 billion in risky assets.
Banks continued to increase their provisioning for problem loans in both consumer and commercial portfolios. The FDIC said loss provisions totaled $50.5 billion, compared to $16.8 billion in the third quarter of 2007.
"The latest loss provisions absorbed a third of the industry's net operating revenue," according to the FDIC.
Charge-offs totaled $27.9 billion in the third quarter, or 1.42% of loans, was the highest quarterly average since 1991, the FDIC said. Approximately two-thirds of the losses were loans tied to real estate, the FDIC said. The FDIC warned that a "significant amount" of charge-off activity in the third quarter due to the failure of WaMu was not reflected in the quarterly numbers, due to purchase accounting rules applied by JPMorgan Chase.
"At this stage of the credit cycle, loan performance problems are spreading to a much wider range of lenders and categories of loans," Bair said. "This trend is linked to a weakening economy and uncertainty in financial markets."
The FDIC's insurance fund fell to $34.6 billion in the third quarter, from $45.2 billion at the end of June due to higher loss provisions for bank failures, the FDIC said. Bair said the fund "may decline further" as the agency expects more banks to fail.
The FDIC said it has "ample authority to raise assessments to ensure that banking industry resources absorb all losses from bank failures and to protect insured depositors."
The capital of the banking industry will support the FDIC fund. So-called "well-capitalized" institutions held $1.25 trillion in total capital at Sept. 30.