New York: Banks and saving institutions in the US appear headed for their first overall quarterly loss since 1990, as troubled loans pile up faster than the federal government’s unprecedented efforts to aid the battered industry, a media report said on Tuesday.
Ever since posting a combined profit of 1.7 billion in the third quarter, already a 94% plunge from a year earlier, life has gotten even worse for the roughly 8,300 financial institutions with deposits backed by the Federal Deposit Insurance Corp, the leading financial daily Wall Street Journal said.
Rising unemployment is causing more agony from old problems such as shaky mortgages and credit cards, and losses now are spreading to commercial real-estate loans, it added.
“The earning power for this industry has absolutely collapsed,” it quoted Eric Hovde, chief executive of Hovde Capital Advisors LLC, a money-management firm in Washington that specialises in financial services, as saying.
Nearly a quarter of the US financial institutions, the Journal said, reported a net loss for the quarter ended 30 September. The percentage is likely to climb when fourth-quarter results are announced in January, with some analysts predicting that even stalwarts like J P Morgan Chase & Co could tumble into the red.
The glum fourth quarter is an ominous sign for 2009, the paper said quoting Keefe Bruyette and Woods Inc.
It added that the US government so far has poured $169 billion into more than 130 financial institutions through its Troubled Asset Relief Programme. But some banks already are looking for more money or hoarding their existing capital in expectation of another awful year.
Fifth Third Bancorp, which got $3.45 billion from the federal government two weeks ago, slashed its quarterly dividend to a penny a share from 15 cents a share, the Journal said, adding that in June, the Cincinnati regional bank cut its dividend for the first time in three decades.
In the past few weeks, the paper noted, some analysts have cut 2009 earnings forecasts and stock-price targets for a slew of big and small banks. These analysts expect rising unemployment to trigger deeper losses on credit cards, mortgages and home-equity loans as more consumers fall behind on their bills.
Combined with newer problems rippling through commercial real-estate and other types of loans, many banks will need to bolster loan-loss provisions, eroding profits further, it added.