US 'problem' banks at 16-year high

The number of troubled banks in the US has risen to its highest level in 16 years, after the banking regulator revealed it had placed 702 institutions on its watch list.

The Federal Deposit Insurance Corporation said the number of insured lenders on its “problem list” had risen from 552 to 702 in the three months to the end of December alone. A total of 45 institutions had failed in the fourth quarter of 2009, taking the total number of banking failures in the US last year to 140.

Resolving these credit market dislocations will take time … as we have said before, recovery in the banking industry tends to lag behind the economy, as the industry works through its problem assets. FDIC chairman Sheila Bair

Private equity real estate firms have been actively working with the FDIC to take over assets from failed banks. In January, Los Angeles-based Colony Capital bought an FDIC portfolio of more than 1,200 loans with a face value of $1.02 billion for an equity investment of $90.5 million. Earlier this month, Lennar Corporation also acquired 5,500 distressed residential and commercial loans with a face value of $3.05 billion from the FDIC for just $243 million. In both cases, the firms took 40 percent stakes in the ventures against the FDIC's 60 percent interest.

Presenting its quarterly report yesterday, the FDIC said the number of loans being written off as bad debts by lenders though had risen by 37 percent over 2008.

More than 8,100 institutions are insured by the FDIC, representing $13 trillion in loans – $4.5 trillion secured against real estate assets.

Around 7.1 percent of all real estate loans were non-current in the fourth quarter of last year, the highest level seen since records began in 1984. Only in the second and third quarters of 1991 did non-payment of real estate loans creep close to the levels witnessed at the end of 2009, but even then non-current debt represented just 4 percent of all property loans outstanding.

The number of real estate loans written off by FDIC-backed lenders in the past year also rose dramatically in the past year, to 2.6 percent in the fourth quarter of 2009 from 1.7 percent in the same period of 2008.

Referring to more stringent lending standards and lower real estate values, FDIC chairman Sheila Bair said: “Resolving these credit market dislocations will take time … as we have said before, recovery in the banking industry tends to lag behind the economy, as the industry works through its problem assets.”

Less than half of all the FDIC-backed institutions reported increased net income in 2009, and 29.5 percent of all insured institutions posted net losses for the year.