Banks increase profitability by $4.9 billion with less saved for loan losses

U.S. lenders increased earnings by $4.9 billion to $26.3 billion in the fourth quarter as companies set aside less money to cover bad loans, the Federal Deposit Insurance Corporation said in a statement issued Tuesday. Earnings were up 23% from the fourth quarter of 2010, the 10th consecutive quarter that earnings have increased year over year, as companies saved about 40% less to cover loan losses. Reduced savings has been a cause of increased profitability for each of the past nine quarters. Companies lost $24.5 billion in bad loans in the quarter, the lowest in 15 quarters, the FDIC said. “The industry is now in a much better position to support the economy through expanded lending," Gruenberg said. Banks reported a full-year net income of $119.5 billion, the highest since 2006, the FDIC said. Decreasing income from operations may be the reason companies are setting aside less to cover loan losses. Net operating revenue for the banks decreased by 2.3% from the fourth quarter of 2010 as non-interest income fell $4.4 billion, or 7.4%. Lower rates of return may be fueled by persistently low interest rates, preventing the banks from earning higher rates of return and opening the doors for banks to help borrowers. Banks have also decreased expenses through lay-offs. In 2011 there were more than 200,000 lay-offs in the global financial-services industry. HSBC HBC and Bank of America BAC both announced plans to cut 30,000 jobs during the year. Bank of America said it may earn up to $5 billion a year by having fewer employees. Companies also issued $130.1 billion more loans in the quarter, half of the increase in loans was to commercial and industrial borrowers, the FDIC said. Few of those loans were for real estate and construction development, as number of those loans issued declined for the 15th consecutive quarter, indicating continued weakness in the housing market. “Insured institutions of all sizes continued to make substantial progress in improving their profitability,” said FDIC Acting Chairman Martin Gruenberg. The $25.4 billion in uncollectible loans written off in the quarter was 40.2% less than a year ago, the FDIC said. About 19% of institutions reported a net loss for the quarter, down from 27% a year earlier. Nearly two thirds of banks reported improvements in quarterly net income as the average return on asset rose from 0.64% to 0.76%. The number of FDIC problem banks declined for the third consecutive quarter to 813, the least since the first quarter of 2010. There were 92 insured bank failures in 2011, down from 157 failures in 2010. The Deposit Insurance Fund, which protects customers' savings up to $250,000 per account, rose $1.4 billion during the quarter as asset revenue increased and fewer banks failed. Deposits in insured accounts rose $249.7 billion, about 3%.