U.S. bank industry posts highest earnings since 2006

WASHINGTON,| Tue Dec 4, 2012 — The U.S. banking industry’s third-quarter earnings were the highest for any quarter since 2006 as revenue growth picked up and banks set aside less money to guard against losses, according to data released on Tuesday by the Federal Deposit Insurance Corp.

The FDIC quarterly report showed the industry earned $37.6 billion in the third quarter – up $2.3 billion, or 6.6 percent, from a year earlier.

That was the industry’s highest quarterly total since the third quarter of 2006, the FDIC said.

And while banks again reduced the amount of funds they set aside in case of losses, revenue growth contributed more to the earnings boost in the third quarter, bucking a recent trend, FDIC Chairman Martin Gruenberg said.

“Loan growth is becoming more established,” Gruenberg said. “Banks continue to clean up and strengthen their balance sheets.”

The report is an encouraging sign that the banking industry is slowly but surely healing after the 2007-2009 financial crisis, although some bigger banks are cutting jobs to cope with persistent pressures, including an industry-wide decline in trading volume.

Net operating revenues rose $4.9 billion, or 3 percent, from a year earlier, the FDIC said. Much of the increase came from asset sales, particularly loan sales.

FDIC sues group of big banks over mortgage debt losses

WASHINGTON, Tue May 22, 2012 – The U.S. government has filed three lawsuits against a group of large banks over losses on soured mortgage debt purchased by two small Illinois banks that failed in 2009.

Acting as receiver for Citizens National Bank and Strategic Capital Bank, the Federal Deposit Insurance Corp. sued a number of banks including Bank of America Corp., Citigroup Inc., Deutsche Bank AG and JPMorgan Chase & Co.

Seeking a combined $92 million, the lawsuits accuse the banks of misrepresenting the risks of residential mortgages they packaged into securities, causing losses for investors once the poor quality and defective underwriting became evident.

The lawsuits were filed on Friday by the law firm Grais & Ellsworth, which has filed many such lawsuits for other clients over residential mortgage securities.

Two FDIC lawsuits were filed in Manhattan federal court and seek a combined $77 million, while a third filed in Los Angeles federal court seeks $15 million.

Bank of America and Citigroup are the only banks named as defendants in all three cases. Deutsche Bank and JPMorgan are defendants in two cases, and Ally Financial Inc., Credit Suisse Group AG, HSBC Holdings Plc., Royal Bank of Scotland Group Plc., UBS AG in one.

Bank of America spokesman Bill Halldin, Citigroup spokesman Scott Helfman and Deutsche Bank spokeswoman Renee Calabro declined to comment. Spokespeople for JPMorgan did not immediately respond to requests for comment.

David Grais, a lawyer representing the FDIC, declined to comment, as did FDIC spokesman David Barr.

FDIC settles with former Washington Mutual executives: sources

SEATTLE, Wash. ― Three former executives of Washington Mutual Inc. have agreed to a payment of about $75 million to settle a lawsuit brought by the Federal Deposit Insurance Corp. over their role in the biggest bank failure in U.S. history, two sources familiar with the talks said on Tuesday.

The three — former CEO Kerry Killinger, former COO Stephen Rotella and the company’s former home lending chief, David Schneider — were sued by the government’s deposit insurer last March.

The payment will be largely funded by Washington Mutual’s remaining liability insurance for directors and officers, the sources said. The FDIC originally sought $900 million.

One source said the personal contribution from the three, who collected $95 million in compensation between 2005 and 2008, would be “a meaningless amount.”

The settlement was first reported by the Wall Street Journal.

The FDIC declined to comment but is expected to make an announcement later on Tuesday.

Attorneys for Killinger, Rotella and Schneider did not immediately return calls seeking comment. The three have denied wrongdoing.

Washington Mutual’s banking business was seized by regulators in September 2008, at the height of the global financial crisis. The bank was immediately sold to JPMorgan Chase & Co for $1.88 billion, with no cost to the FDIC for covering deposits.

The holding company filed for bankruptcy the day after the bank seizure.

On Monday, the holding company reached an agreement with shareholders that could clear the way for it to end its three-year stay in Chapter 11 and begin distributing $7 billion to creditors.

An investigation by the U.S. Senate found that Washington Mutual contributed to the U.S. housing and financial crisis by adopting a compensation policy that encouraged its employees to ignore safety controls and crank out shoddy home loans.

Those loans were packaged into bonds and sold as top-notch securities. When U.S. housing market collapsed, those bonds plummeted in value and spread financial losses around the globe.

The FDIC brought its case in federal court in Washington state, accusing the three former executives of gross negligence and reckless disregard for the long-term safety of the bank.The lawsuit was unusual in that it also named the spouses of Killinger and Rotella as defendants and accused them of helping their husbands hide assets, such as homes, from creditors. The claims against the spouses will be dropped and they will not contribute to the settlement, one source said.

U.S. bank earnings continue to increase, FDIC questions for how long

WASHINGTON ― U.S. bank earnings continue to increase but the prospects for earnings growth are dimming as banks are having trouble boosting revenue.

The Federal Deposit Insurance Corp said on Tuesday that the industry earned $28.8 billion in the second quarter, a $7.9 billion increase from a year before.

That number is down slightly from the $28.9 billion in earnings recorded during the first quarter.

The agency again warned that earnings increases are mostly due to banks setting aside less to guard against losses from bad loans.

“As the levels of loss provisions approach their historic norms, the prospects of earnings improvement from further reductions in provisions diminish,” FDIC Acting Chairman Martin Gruenberg said at a news conference on the release of the agency’s quarterly banking report.

Bank revenues continue to fall.

During the second quarter net operating revenues fell $3 billion, or 1.8 percent, from the levels recorded a year ago, the agency said.

In a positive sign for the industry, bank loan balances grew during the second quarter for the first time in three years, up $64.4 billion, or 0.9 percent.

Gruenberg highlighted the increase but added a note of caution.

“A significant portion of the overall growth in loans represented intra-company lending between related banks,” he said. “Lending activity still has a long way to go before it approaches more normal levels.”

The KBW Bank Index .BKX of stocks is down about 33 percent this year as investors fear a sputtering U.S. economic recovery and contagion from the European debt crisis.

There was evidence in the report of how the industry continues to recover from the doldrums of the 2007-2009 financial crisis.

The number of banks on the agency’s “problem list” fell for the first time in 15 quarters, dropping to 865 in the second quarter from 888 in the first quarter. There have been 68 bank failures so far this year, mainly small institutions.

The deposit insurance fund that the FDIC uses to cover the cost of failed banks moved into positive territory for the first time in two years.

At the end of the second quarter the fund stood at positive $3.9 billion, improving on a negative $1 billion at the end of the first quarter.

Banks chafe at pay clawbacks in liquidation proposed plan

WASHINGTON ― Banks and other large financial companies that could be seized and liquidated by the government are balking at a proposed plan they argue gives regulators too much power to snatch back executives’ pay if their institutions fail.

The plan is part of a broader proposal first issued earlier this year. A final rule is expected to be adopted today by the Federal Deposit Insurance Corp.

The 2010 Dodd-Frank financial oversight law gives regulators the ability to recoup up to two years of pay from executives considered substantially responsible for a company’s failure as part of regulators’ power to seize large financial firms on the brink of failure.

Banking groups are complaining that the regulators are going too far in interpreting who is “substantially responsible” and are not setting clear standards for when executive pay should be recouped.

“Vague and arguably unfair provisions would create powerful incentives for senior executives and directors with the best options to head for the exits at the first sign of trouble, lest a substantial portion of their compensation be at risk,” top banking groups including the American Bankers Association, The Clearing House and the Financial Services Roundtable wrote regulators in May.

The groups argue that an institution’s failure could be due to market conditions outside of a company’s control and that should be reflected more in the rule.

The clawback provision was inserted into the law in response to public anger that banking and Wall Street executives at firms such as American International Group were being paid handsomely despite mistakes that helped bring about the 2007-2009 financial crisis.

There is some sympathy among regulators for the banks’ complaints.

Acting Comptroller of the Currency John Walsh and acting Office of Thrift Supervision Director John Bowman, both FDIC board members, expressed concern when the rule was first released that the clawback provision may be too broad.

Walsh said he was concerned the provision was tied too tightly to job titles as opposed to what actions specific executives took.

But regulators and politicians, for the most part, have had little sympathy for complaints about executive pay restrictions at a time when unemployment is high and the economy is still weak. The final rule is not expected to be much different from the proposal released in March.