More than 700 U.S. banks are on the Federal Deposit Insurance Corporation's "problem list" of banks in danger of defaulting, the agency said Wednesday.
At the end of December 2009, there were 702 U.S. institutions on the list, up from 552 on Sept. 30, 2009.
At the same time, the total assets of "problem" institutions increased during the quarter from $345.9 billion US to $402.8 billion US, the FDIC reported. Forty-five institutions failed during the fourth quarter, bringing the total number of failures for the year to 140, the highest annual total since 1992, the peak of the savings-and-loan crisis.
The 702 figure represents roughly one in 11 of the 8,000 chartered banks in the United States. So far this year, 20 U.S. banks have failed, and the pace is likely to quicken, FDIC chair Sheila Bair said.
The main culprit appears to be soured commercial real estate loans. A schism is developing in the U.S. banking sector, as Wall Street powerhouses have for the most part seen a return to profitability, thanks in part to federal bailout funds.
But on the other side, small and mid-sized institutions continue to suffer distress, since they are especially vulnerable to losses on loans for commercial real estate such as stores and office complexes.
In local economies, these loans make up a disproportionate share of business for those institutions. Losses are growing as buildings sit vacant and builders default on their loans.
"This year, the losses are going to be heavily driven by commercial real estate," Blair said. "We’ve known for some time and we have been projecting that."
One in 11 banks under stress
A recent report by the Congressional Oversight Panel found that U.S. banks face up to $300 billion in losses on loans made for commercial property and development.
That report also said that on nearly half of all commercial real estate loans, the borrowers owe more than the property is worth, and the biggest loan losses are expected for 2011 and beyond.
Beyond the bleak number of distressed banks, on the whole U.S. banks eked out a relatively modest $914 million profit in the quarter. That's well above the $37.8 billion US net loss the industry sustained during the depths of the recession in the fourth quarter of 2008 but still well below historical norms for quarterly profits, the FDIC said.
More than half of all institutions (50.3 per cent) reported year-over-year improvements in their quarterly net income while almost a third of all institutions (32.7 per cent) reported net losses.
But the Deposit Insurance Fund — essentially the net worth of the fund — decreased by $12.7 billion US during the fourth quarter. It sits at an all-time low of $20.9 billion US. That reflects a $44 billion contingent-loss reserve that has been set aside to cover estimated losses.
If those funds are included, the fund's net worth is $23.1 billion US. On Nov. 12, 2009, the FDIC required most insured institutions to prepay about three years worth of deposit insurance premiums — almost $46 billion US — at the end of 2009 to pad the shortfall.
Total insured deposits increased by 13.5 per cent or $641.3 billion during the full year 2009.