FDIC Q109 Data Update

Just a quick overview of highlights from the latest FDIC data for Q1 2009 with my comments (in italics).

Sharply higher trading revenues at large banks helped FDIC-insured institutions post an aggregate net profit of $7.6 billion in the first quarter of 2009.

Profits were still down 60.8% year-to-year, but much better than the $36.9 billion loss in Q408. Besides higher trading revenue boosting profits, lower provisions for loan losses also helped. Not exactly the most durable sources of earnings improvement....lower funding costs from quantitative easing by the Fed helped; at least that's something we can depend on.

Noncurrent loans and leases increased by $59.2 billion (25.5 percent), the largest quarterly increase in the three years that noncurrent loans have been rising. The percentage of loans and leases that were noncurrent rose from 2.95 percent to 3.76 percent during the quarter; the noncurrent rate is now at the highest level since the second quarter of 1991.

No news to Urban Digs readers here, just confirms what the top 100 banks reported to the Fed recently (Bank Credit Update). So why were provisions for loan losses down, exactly?

Total equity capital of insured institutions increased by $82.1 billion in the first quarter, the largest quarterly increase since the third quarter of 2004.

TARP, TARP & MORE TARP - Have the banks raised enough capital to absorb all their loan losses and start lending again? After all, what a great time it is to lend: spreads are near record highs, real estate values are down, borrowers who would invest now are likely the conservative, value-oriented types who didn't blow themselves up.

Total assets declined by $301.7 billion (2.2 percent) during the quarter, as a few large banks reduced their loan portfolios and trading accounts. This is the largest percentage decline in industry assets in a single quarter in the 25 years for which quarterly data are available.

Apparently, the answer to my question above is no, banks are lending less, not more. Admittedly, it is a few big banks that caused the asset contraction, but I fully expect smaller banks, who generally have much lower exposures to residential real estate loans and much bigger exposures to commercial real estate loans, to soon follow suit and cut lending drastically as they begin absorbing losses in earnest.

Twenty-One Failures is Highest Quarterly Total Since 1992

And we're just getting started! However, it will be smaller institutions for the most part from here on out and systemic risk to the banking system has likely passed....although systemic risk to the FDIC hasn't.

The table above shows the quarter-to-quarter and year-to-year changes in various loan categories as well as their impacts on overall lending. Frankly, I find the data somewhat surprising, but also somewhat intuitive. Banks have generally pulled back from lending in the categories where they have screwed up, like residential home loans and construction and development loans. Why they are growing their commercial real estate (nonfarm-non-residential bucket), home equity and credit card books (year-to-year) is beyond me....could penalties on late payments and delinquencies be increasing the loan amounts outstanding here???

Certainly forbearance and loan extensions have cushioned the commercial real estate balances. My guess is that the big quarter-to-quarter pullback in credit card loans is largely seasonal, but clearly the terms of credit card borrowing have become more restrictive and may be having an impact. As losses increase, which we are already seeing in the Q109 Federal Reserve Data, my guess is that lending will tighten up in nonfarm non-residential loans (the commercial real estate bucket), C&I loans and credit cards.