BizNomic

The Federal Deposit Insurance Corporation today released the fourth quarter report which revealed that the number of distressed banks in the US rose from 552 at the end of September to a whopping 702 in the last quarter. Based on the result, roughly one in 11 of the approximate 8,000 U.S. banks are on the troubled list, the highest in sixteen years.

Banks insured by the FDIC dropped to a total quarterly profit of $914 million in the fourth quarter, which ended Dec. 31, compared with $2.8 billion in the third quarter. The result was significantly better than the $37.8 billion loss for insured institutions during the fourth quarter of 2008, but well below historical norms.

FDIC reports are not very encouraging

This is said to be caused mainly by the problems in commercial real estate loans. “This year the losses are going to be heavily driven by commercial real estate, we’ve known for some time and we have been projecting that,” said FDIC Chairwoman Sheila Bair said to reporters. She also said that in case of real estate loans, the tenants may be in longer team leases but these come due and they don’t renew or they renew at significantly reduced rental rates.

According to the FDIC, the number of problem assets at institutions was $402.8 billion at the end of the year, compared with $345.9 billion at the end of the third quarter. As indicated by the profit numbers, though the banking industry is showing signs of improvement, it is lagging behind the economy, as it works through its assets.

FDIC has also revealed that its Deposit Insurance Fund, which is used to protect depositors, dipped deeper into the red, with a $20.9 billion loss for its fund balance in the fourth quarter, worse than its $8.2 billion loss in the third quarter.

The FDIC estimates that bank failures will cost the agency as much as $100 billion over the next five years, between 2009 and 2013, with the majority of the losses taking place in 2009 and 2010. The agency made that estimate in September and as of February it still stands.

Bair reiterated that she expects 2010 to be the peak year for bank failures. “The pace is probably going to pick up this year and for the total year it will exceed where we were last year,” Bair said. It is also expected that once the credit tightens, banks will no longer be able to rely on the easy profits of the last two years to cushion their losses.

The FDIC, however, does not disclose which banks it considers at risk. Lenders on its list are not necessarily in imminent danger of failure.

Remarks suggest that the financial industry is stabilizing, even though the immediate future looks hazy at best.

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