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Real estate loans hobble bank profits
WASHINGTON (5/30/08)--Troubled real estate loans reduced commercial bank and thrift net income to $19.3 billion in the first quarter of 2008--down from the $35.6 billion the industry earned in the first quarter of 2007. The Federal Deposit Insurance Corp. (FDIC) yesterday cited higher provisions for loan losses as the primary reason for the drop in industry profits. The size of the earnings decline was attributed mainly to a few large institutions, but more than half of all insured institutions reported lower net income in the first quarter. The FDIC said bank and thrift noncurrent loans still are rising sharply. Loans 90 days or more past due increased by $26 billion (or 24%) to $136 billion during the first quarter. That followed a $27 billion increase in the fourth quarter of 2007. The FDIC said real estate loans comprised almost 90% of the increase in noncurrent loans during the first quarter, but noncurrent levels increased in all major loan categories. At the end of the first quarter, 1.7% of the industry's loans and leases were noncurrent. By comparison, credit unions have shown a special capability to make solid loans. While the National Credit Union Administration shows net charge-offs rose to 0.67% in first-quarter 2008 from 0.50% in fourth-quarter 2007, credit union charge-offs still are lower than banks'. Banks' net charge-offs reached a five-year high of 0.99% in first-quarter 2008, up from 0.83% in fourth-quarter 2007, reports the Federal Deposit Insurance Corp. FDIC Chairman Sheila C. Bair said the banks and thrifts being closely monitored “are those with high levels of exposure to subprime and nontraditional mortgages, with concentrations of construction loans in overbuilt markets, and institutions that get a large share of their revenues from market-related activities, such as from securities trading."
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