Banks Earn Record Profits

Ben Bernanke might not be pumping much life into employment or wages but he’s got the banks on a roll:  record profits in the first quarter–$40.3 billion.  That’s a 16% increase from last year’s Q1.

“We … note that large, nonrecurring income and expense items at some of the industry’s largest institutions exerted a significant influence on the quarterly change in net income and helped push industry net income above $40 billion for the first time,” said FDIC Chairman Martin Gruenberg, who added that the previous earnings record occurred over six years ago “when the industry was 20% smaller” as measured by total assets.

Loan loss provisions dropped 23% from a year ago to $11 billion.  That’s the lowest quarterly provision since the first quarter of 2007 before the financial system hit the fan.

Net interest margin continues to get hammered, hitting the lowest it’s been since the 4th quarter of 2006 at 3.27%.   Net interest income fell for the 3rd straight quarter to $104 billion.

The super secret “problem bank” list shrank to 612 banks, still a high level given that there are now only 7,019 reporting institutions (almost 9% of all banks are still a problem).  Again, for the 7th consecutive quarter no new institutions were added.

In 2003, there were 9,181 reporting institutions with total assets of $8.6 trillion.  The number of institutions has declined by nearly a quarter in the last decade while assets have grown to $14.4 trillion.

The deposit fund has $35.7 billion in it, covering 59 basis points worth of insured deposits.

The notional amount of derivatives held at banks increased to $232.6 trillion

“Asset quality continues to improve, more institutions are profitable, and the number of failures and problem institutions continues to decline,” FDIC Chairman Martin Gruenberg said in remarks prepared for the release of the report.

Meanwhile, Zero Hedge reports,

The last week has seen quite dramatic drops in the prices of a little-discussed but oh-so-critical asset-class in the last housing bubble’s ‘pop’. Having just crossed above ‘Lehman’ levels, ABX (residential) and CMBX (commercial) credit indices have seen their biggest weekly drop in 20 months as both rates and credit concerns appear to be on the rise. Perhaps it is this price action that has spooked Fitch’s structured products team, or simply the un-sustainability (as we discussed here, here and here most recently) that has the ratings agency on the defensive, noting that, “the recent home price gains recorded in several residential markets are outpacing improvements in fundamentals and could stall or possibly reverse.” Simply put, “demand is artificially high… and supply is artificially low.”

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