February Wrap-Up: 252 Banks on FDIC Watch List, Gold Pull Back, Dow Declines (Again)

Friday, the Federal Deposit Insurance Corp. (FDIC) released its last quarter banking profile (PDF) of 2008 and the banking sector is still very weak, despite hundreds of billions of dollars of infusion from the government. At the end of 2008, a total of 252 banks were placed on the FDIC’s problem bank list, up from 171 institutions at the end of the third quarter.

The combined assets at these troubled financial institutions also went up from $116 billion at the end of third quarter to $159 billion. At the same time, earnings at banks kept falling. According to the FDIC report, the banking industry reported its first quarterly loss of $26.2 billion in the four quarter since 1990, with full year net income falling to $16.1 billion, which is also the lowest since 1990. While net income fell sharply, loan loss provisions skyrocketed to $60.3 billion in the last quarter of 2008, more than twice the amount set aside in the same period a year ago. The only good news we can get from the report is the strong growth in domestic deposits. In the fourth quarter, interest bearing deposits grew by $242.9 billion. Finally, people are saving.

BTW, another evidence that the banking sector is still struggling is the increase of bank failures. So far in 2009, 16 banks have been shut down, 10 in February alone. That is more than any month in 2008.

And jitters in the financial market weighed again on stocks on Friday as Citigroup (C), once the world’s largest financial institution, needed a third rescue package from the government. Now after injecting $70 billion into the ailing bank, the government owns 36% of Citi, which has a market value of only $8.2 billion at the close of Friday’s trading.

Also on Friday, a government reported showed that U.S. economy plummeted in the last three months of 2008. Revised fourth quarter GDP showed a 6.2% annual rate contraction, the worst quarterly declined since 1982. All the bad news together pushed stocks lower on Friday and for the month. In February, the Dow Jones Industrial Average dropped for sixth consecutive month. The loss of 11.7% is the worst February for the blue-chip in its history.

Finally, precious metal took a breather. After rallying past the $1,000/ounce milestone the first time since March 2008 last Friday, gold recorded 5 straight losing sessions this week. For the week, gold lost more than $60, or 6%, more than any of the major indices. Will gold fall even further?

Comments

[Mongoose:]

I expect the $900 / $920 area to hold and consolidate. a 100 dollar trading range may be in order rather than wild swings for a short period of time.

Mar 01 08:48 AM

[ROLEXROLEX:]

The more banks shut down, the better it is for those that remain, soon you will witness market rally with inancials starting it, Oil/Gas finishing.

Mar 01 12:30 PM

[zenfarmer:]

If C fails, the FDIC is going to have to kick in anyway. The gov't needs to be using its funds to protect C's depositers. Instead they're giving the funds to C's incompetent board for shares of stock that stand to become worthless. The gov't is unable to make risk assessments and business decisions. The take over of C and the rest should be borne by the competent banks. The gov't might at most have to take over the transactions portion of C and the rest to allow its depositers to continue accessing their accounts without having to file for FDIC protection, and that would be only if the competent banks call upon it for such support.
The funds that the gov't is spoon-feeding C with is our money. Americans will be paying down principal and interest on these funds for generations to come. That includes those portions distributed as bonuses to the execs of C and the rest.

Mar 01 02:17 PM

[Sun:]

@Mongoose Gold has been traded down in the past 6 sessions, the $900 to $910 is clearly a support level. If it can hold that level, then we will see gold rally back.

@ROLEX I am not sure whether we will benefit from having fewer banks around as there will be less competition. Actually, from a customer point of view, nationalization of the big banks may not be a bad idea because then we won't worry about our money, though as investors, we don't like that idea.

Mar 05 03:10 PM

[tradealarm:]

Where to find the list if possible?

Mar 28 01:10 AM

[tradealarm:]

Where to find the troubled bank list if possible?

Mar 28 01:12 AM