The Nation’s Recent Big Bank Losses Are Heart-Stopping

We know Banks have been having problems, but looking at the latest report from the industry’s main regulator might not be advisable for readers with heart conditions.

For the fourth quarter, the nation’s commercial Banks and savings and loans reported a net loss of $26.2 billion, the first industrywide loss in 18 years, according to the Federal Deposit Insurance Corp.

Even more heart-stopping is the fact that during the last quarter, the FDIC’s list of problem Banks grew to 252 from 171, the largest number since 1995.

Last year, the FDIC pulled the plug on 25 banks. In the first seven weeks of this year, the tally is 14 failed banks, a pace that would exceed 100 by year-end.

As for the amount of aggregate problem assets held by the nation’s 8,500 banks, as of the end of December it was $159 billion, compared with $115.6 billion in the third quarter.

The FDIC report allays our fears by saying two-thirds of the banks are making profits and are well-capitalized. Yet those banks’ profits “were outweighed by large losses at a number of bigger banks.”

If you want to know who the culprits are, just get a list of the nation’s biggest banks. For the most part, the smaller community banks and thrifts are doing fine.

For example, Bank of Internet USA reported net income of $944,000 for the six months ended Dec. 31, compared with net income of $1.4 million for the same period of 2007. It held 0.61 percent of its portfolio in problem assets.

CEO Greg Garrabrants says his institution has not deviated from requiring strong underwriting standards, and decreased the amount of mortgages it keeps as reasons behind its success.

Instead of retaining loans, BofI has been selling them off to agencies such as Fannie Mae and Freddie Mac. BofI said the U.S. government decision to put Fannie Mae into conservatorship resulted in the bank reporting a first-quarter net loss of $1.8 million, or 24 cents per diluted share, compared with net income of $747,000, or 8 cents per diluted share, for the three months ended Sept. 30, 2007. The bank said it sold all of its Fannie Mae preferred stock at a pretax loss of $7.9 million.

Although BofI was approved to receive federal funds through the controversial Troubled Asset Relief Program, Garrabrants remains skeptical.

“We’re just sitting back and seeing how all this develops,” he said. “We don’t need the money, so we feel like it’s better to watch and wait, and keep our options open.”

Last year wasn’t great at Balboa Thrift