Pru's initiation of SELL coverage on certain banks is certainly a change of character. Seems Fed Governor's comments today on economy would indicate the trend is starting to look better. But the Comptroller of the Currency sees things differently:
Comptroller Hawke Adds to Warnings About Bad US Bank Loans
Washington, March 8 A U.S. banking regulator today warned that a steady increase in problem loans will hurt banking industry earnings.
``Almost every week, some bank announces a new round of writedowns and charge-offs,'' Comptroller of the Currency John D. Hawke Jr., said in a speech to bankers in Las Vegas. ``Future earning will almost certainly be impacted.''
Hawke's comments come one day after Federal Reserve Board Chairman Alan Greenspan told the same group of bankers that earnings and loan quality at some large banks will continue to suffer this year due to loose lending standards in the late 1990s.
Hawke said that federal banking supervisors would fashion a ``carefully calibrated'' response to banks' underwriting standards and credit practices.
He told the bankers that delinquent commercial loans at national banks with assets of more than $1 billion has nearly doubled during the past three years, from 0.73 percent to 1.38 percent of total business loans. The percentage of bad loans for smaller banks has dropped during that same time, from 1.63 percent to 1.59 percent, Hawke said.
Loan-loss rates at large banks more than tripled over the three-year period, from 0.17 percent to 0.63 percent, Hawke said.
Impact on Earnings
Three of the top five U.S. banks, and 10 of the top 20, reported profit declines last year, said Ross Waldrop of the Federal Deposit Insurance Corp.'s division of research and statistics.
The FDIC released a preliminary report on fourth-quarter bank earnings yesterday that blamed bad loans for much of the profit decline last year. The drop was the first for the banking industry in nine years. The FDIC said banks set aside $9.5 billion to cover possible loan losses during the fourth quarter, the largest quarterly loss provision since 1991.
Among the banks that reported profit shortfalls last year due to credit problems were Bank of America Corp., Bank One Corp. and Wachovia Corp.
Charlotte, North Carolina-based Bank of America, the No. 3 U.S. banking company, said it wrote off $1.08 billion of uncollectible loans in the fourth quarter and reported profit from operations fell in the fourth quarter to $1.39 billion from $2.12 billion a year earlier.
Wachovia Corp.'s fourth-quarter profit fell 3.5 percent as the bank wrote off $94.3 million of uncollectible loans in the quarter, up from $65.3 million in the year-earlier quarter. The company charged off $123.8 million in the third quarter.
Bank One said it plans to cut back its corporate lending by up to $20 billion. The Chicago banking company wants to limit its lending to its most profitable customers.
The Good News
``We believe the banking industry generally is better positioned to withstand these problems than it's been at almost any other time, Hawke said.
Key indicators, such as the amount of capital banks hold compared to assets and the ratio of capital to loans, are healthier than 10 years ago, Hawke said. Total equity capital is more than double what it was in the early 1990s.
The percentage of bad loans held by banks is also considerably less than in the early 1990s. According to the FDIC, the delinquency rate for commercial and industrial loans stood at 1.12 percent at the end of last year. The corresponding rate in the middle of 1991 was 4.83 percent and was nearly 6 percent in 1987, the FDIC said.
Mar/08/2001 12:44 ET |
