US banking industry continues to 'gradually improve', although non-current mortgages remain stubbornly high
25 May 2012
FACTS: Commercial banks and savings institutions insured by the US Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $35.3bn in the first quarter of 2012, a $6.6bn improvement from the $28.8bn in net income the industry reported in the first quarter of 2011. This compares with an aggregate profit of $26.3bn in Q4 2011.
ANALYSIS: According to the FDIC, the condition of the US banking industry continues to gradually improve as insured institutions have made steady progress in shedding bad loans, bolstering net worth and increasing profitability. However, loan balances declined by $56.3bn (0.8%) after three consecutive quarterly increases and although the overall amount of non-current loans (those 90 days or more past due or in non-accrual status) fell for an eighth consecutive quarter, the level of non-current mortgages bucked the trend, ticking up for the second consecutive quarter. For instance, non-current first charge family residential mortgages increased from 9.63% at end-2011 to 9.87% at end-Q1 2012.
DAVY VIEW: Six years into the US housing downturn, non-current mortgages (which peaked at 10.8% in Q1 2010) remain stubbornly close to 10%, where they have broadly been for the past two years, notwithstanding the number of loan modification and loan refinance programmes available to US borrowers. It of course excludes the substantial level of foreclosure activity that has already taken place in the US. The US experience is a timely reminder of the protracted nature of housing downturns as we await Irish owner-occupier arrears statistics for Q1. These are likely to show that 90 days plus arrears have breached 10%, up from 9.2% at the end of 2011. The overall level of 'troubled' mortgages (90 days arrears and restructured, not in arrears) will also be up (from 14% at end-2011).