Late loans soar on troubled mortgages: FDIC
Wednesday August 22, 8:09 pm ET
By John Poirier
WASHINGTON (Reuters) - The Federal Deposit Insurance Corporation said on Wednesday delinquent loans at U.S. banks jumped 36 percent to $66.9 billion in the second quarter, the biggest quarterly increase since 1990, largely fueled by unpaid real estate loans.
Rising U.S. home foreclosures and problems in the subprime mortgage market have spilled into broader financial markets in recent weeks.
In a sign of the distress borrowers are facing, U.S. banks' delinquent or noncurrent loans hit $66.9 billion at the end of the second quarter, up 36 percent from a year ago and up 10.6 percent from the end of the first quarter, the FDIC said.
The rise was the largest quarterly jump since the fourth quarter of 1990, the agency said. The second-quarter figure also represented the largest 12-month increase since 1991.
Noncurrent loans are those for which payments are overdue by at least 90 days.
"We remain vigilant," FDIC Chairman Sheila Bair told a news conference on the data. "We are closely monitoring the situation in the markets as well as individual institutions."
Charge-offs, which indicate losses due to unpaid loans, also jumped sharply in the second quarter to the highest level since the end of 2005. Net charge-offs totaled $9.2 billion, up 51 percent from $6.1 billion in the same quarter of 2006.
Bair said the "tremendous golden age of banking" for U.S. financial institutions has ended, at least temporarily.
"Everybody is being challenged in this current environment," she said.
The chairman of the Congressional Joint Economic Committee warned that consumers and the economy face severe consequences unless action is taken to slow the pace of home foreclosures. Sen. Charles Schumer, a New York Democrat, said action was needed to address worsening conditions in mortgage markets, especially for subprime loans to less-credit-worthy borrowers.
Many economists are concerned about the credit logjam's potential drag on the economy and feel a cut in interest rates would help calm jittery financial markets.
The Federal Reserve cut its discount rate for emergency loans by 50 basis points on Friday and acknowledged it was ready to cut the funds rate if needed. On Wednesday, a Reuters poll of more than 100 U.S. and European economists showed that most are convinced the Fed will cut interest rates at its September 18 meeting because of the global credit squeeze.
Bair declined to comment on Countrywide Financial Corp (NYSE:CFC - News), the largest U.S. mortgage lender. The company cut 500 jobs and at least two Wall Street analysts said the company could end up in bankruptcy if market conditions worsened. Late on Wednesday, Bank of America (NYSE:BAC - News) said it would invest $2 billion in Countrywide to help shore up its finances.
Industrywide, noncurrent home mortgage loans totaled $27.5 billion at the end of the second quarter. That was up 47 percent from a year ago and up 12.6 percent from the end of the first quarter, the FDIC said.
The FDIC said the number of "problem institutions" grew to 61 in the second quarter from 53 in the previous quarter, including an institution with assets of $10 billion. It did not identify those institutions.
U.S. banks saw second-quarter earnings fall 3.4 percent to $36.7 billion from $38 billion in the year-ago period, but marked their fourth-highest earnings quarter.
Bair said banks are generally well-capitalized and diversified to work through the market adjustments, but still face challenges ahead. "Under the circumstances, the industry's second-quarter earnings performance was very solid," she said.
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