Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $14.5 billion in the third quarter of 2010, a $12.5 billion improvement from the $2 billion the industry earned in the third quarter of 2009. This is the fifth consecutive quarter that earnings have registered a year-over-year increase.
"The industry continues making progress in recovering from the financial crisis. Credit performance has been improving, and we remain cautiously optimistic about the outlook," said FDIC Chairman Sheila C. Bair. "Lower provisions for loan losses are driving bank earnings by allowing a larger share of revenues to reach the bottom line."
But Chairman Bair also said, "At this point in the credit cycle it is too early for institutions to be reducing reserves without strong evidence of sustainable, improving loan performance and reduced loss rates. When it comes to the adequacy of reserves, institutions should always err on the side of caution."
Total assets increased by $163 billion (1.2 percent) during the quarter. Investment securities holdings increased by $113.7 billion (4.5 percent). Assets in trading accounts rose by $86.9 billion (12.8 percent).
The primary factor contributing to the year-over-year improvement in quarterly earnings was a reduction in provisions for loan losses. While quarterly provisions remained high, at $34.9 billion they were $28 billion (44.5 percent) lower than a year earlier. Net interest income was $8.1 billion (8.1 percent) higher than a year ago, and realized gains on securities and other assets improved by $7.3 billion from a year ago.
Full release here: FDIC Release on Banks
Couple things on this: The reduction in reserves, while intuitive from a cyclical perspective, seems a little early. I have noted my concern of the releases previously and still think they lead to lower quality earnings. Also note the increase in trading account assets, find this interesting given the emphasis of the regulators on de-risking banks.
Disclosure: Long various bank equity and preferred.
No comments:
Post a Comment