Related topics

Regulators Say Bank Profits Could be Flat after Record Quarter

June 15, 1987

WASHINGTON (AP) _ The U.S. banking industry earned a record $5.3 billion in the first three months of 1987, but federal bank regulators said today they anticipate a precipitous drop, perhaps to zero, in the quarter now under way.

The Federal Deposit Insurance Corp., in its quarterly report on the nation’s banks, said the quarterly earnings for the 14,061 banks reporting data showed total net income of $5.29 billion, the largest profit ever for a single quarter.

But the record overstates the health of the banking industry, said FDIC Chairman William Seidman.

The 54 bank failures in the first quarter of 1987 also set a record, he said.

And, he added, ″there are significant indications that the second quarter will be the worst quarter in history″ in both the rate and amount of earnings declines, with the industry’s aggregate net profit likely to be near zero.

The reason for the plunge, he said, is the billions of dollars the nation’s largest banks are setting aside as loss reserves against loans to Third World countries, particularly Brazil.

Although those huge loans affect only the 25 largest banks, he said, they are so big that, coupled with delinquent loans in the oil and farm belts, they likely will wipe out the industry’s aggregate profit.

The FDIC, in its summary of the report, noted the banking industry has suffered continued erosion in profits and loan quality since 1981.

″Each year’s decline has been linked to a dominant economic development,″ the agency said. ″First, there was a recession, followed by a crisis in the agricultural sector.

″More recently, a collapse in oil prices has led to performance problems.

″This year, it appears that foreign debt problems will dominate the earnings picture for the industry,″ the agency said.

Despite the problems, Seidman predicted the banking industry’s profits will revive in the last half of the year after the major banks set aside the loss reserves for Third World loans.

And the huge losses posted by the major banks will not affect the substantial profits posted by thousands of smaller, local-oriented banks.

Update hourly