Money world

WASHINGTON–The number of problem U.S. banks and thrifts soared to a 15-year high in the first quarter as they faced mounting losses from home mortgages, commercial real estate and consumer credit cards in the recession, regulators report.

The Federal Deposit Insurance Corp. said yesterday the list of troubled banks and savings-and-loans shot up 21 per cent to 305 in the first quarter from 252 in the 2008 fourth quarter, the highest number being carefully watched since 1994.

The FDIC said its deposit insurance fund, used to cover losses when banks fail, fell to the lowest level since 1993. As of March 31, it was down to $13 billion (U.S.) from $17.3 billion at the end of 2008.

"Bank failures continued to mount and they will continue to do so," FDIC chairwoman Sheila Bair told reporters.

Despite bank lobbying efforts, reported by the Wall Street Journal, Bair said U.S. banks will not be allowed to bid on the same loans they offer for sale in the government’s public-private investment program to get hard-to-value loans off banks’ books.

"There should be no confusion. Banks will not be able to bid on their own assets," Bair said. The program, using billions in taxpayer dollars, aims to help attract private investors to buy distressed loans banks want to sell.

Bair said before the program is launched, the Treasury must issue guidance to prevent fraud and collusion in determining asset prices.

The quarterly list of problem banks held combined assets totalling $220 billion on March 31, up from $159 car insurance comparison.4 billion at the end of 2008. The agency does not release names of problem banks; it compiles its list from regulators’ confidential assessments of their capital adequacy, asset quality, management, earnings and liquidity.

U.S. bank failures so far in 2009 stood at 36 last Friday. If that pace continued, more than 100 FDIC-insured banks could fail this year, up from 25 in ‘08 and three in ‘07.

The banking outlook prompted Congress to more than triple the FDIC line of credit with the Treasury to $100 billion as it tries to replenish its insurance fund.

Bair said the agency has no plan to tap the new borrowing authority it views "as a back-up line."

JPMorgan Chase & Co, the second-largest U.S. bank, said it will likely incur $700 million to $750 million in pretax charges related to the new FDIC special assessment of 5 basis points on each bank’s assets to beef up the fund, either this quarter or the next two quarters.

U.S banks had a net profit of $7.6 billion in the first quarter, down 61 per cent from a year ago but a turnaround from the industrywide loss of the last quarter of 2008.

In a sign bank customers are falling behind on payments, noncurrent loans rose to $291 billion in the quarter, more than double the $137 billion of the year-earlier quarter.

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