The FDIC (Federal Deposit Insurance Corporation) which provides protection to checking and savings deposits up to $100,000 per depositor, recently released their latest “Quarterly Banking Profile”. The results look ‘pretty dismal’ as Q2 earnings were 87% below the Q2 2007 level ($5bn versus $37bn) as loss provisions rocketed to $50bn. The number of troubled banks on the FDIC’s watch list increased to 117, up from 90 in Q1.
While the banking industry’s ‘coverage ratio’ (ratio of loss reserves to noncurrent loans) dropped to a 15-year low, banks would have little choice to shore up their reserves in forthcoming quarters. Importantly, this will come at the cost of future earnings growth.
Globally, the total writedown of losses in the recent housing market and credit crunch crisis exceed $500 bn. Thus far primary dealers were at the forefront of the writedowns. Institutions like the IMF estimated earlier that the total losses would eventually amount to $1 trillion ($1,000 bn), while Nouriel Roubini, a widely respected economist, estimated a global $2 trillion loss. Interestingly, foreigners hold about 40% of asset-backed US securities. With a 20% markdown of these assets about $475bn will be lost abroad.
While the banking industry’s ‘coverage ratio’ (ratio of loss reserves to noncurrent loans) dropped to a 15-year low, banks would have little choice to shore up their reserves in forthcoming quarters. Importantly, this will come at the cost of future earnings growth.
Globally, the total writedown of losses in the recent housing market and credit crunch crisis exceed $500 bn. Thus far primary dealers were at the forefront of the writedowns. Institutions like the IMF estimated earlier that the total losses would eventually amount to $1 trillion ($1,000 bn), while Nouriel Roubini, a widely respected economist, estimated a global $2 trillion loss. Interestingly, foreigners hold about 40% of asset-backed US securities. With a 20% markdown of these assets about $475bn will be lost abroad.
An additional worry is the fate of Fannie Mae and Freddie Mac, where banks and insurance companies are major holders of their $36bn preferred shares, but which have been downgraded heavily thus year. Government intervention is imminent, but it is unlikely that existing shareholders will not have to write off some losses.
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