Though 2010 was a "turnaround" year for banks, the number of problem institutions continued to increase during the year, according to the FDIC’s Quarterly Banking Profile for the fourth quarter of 2010. A copy of the FDIC’s February 23, 2011 press release about the report can be found here, and the Quarterly Banking Profile itself can be found here.
The FDIC defines a problem institution as one the agency has rated as a 4 or 5 on a 1 to 5 scale of ascending regulatory concern. Problems institutions are those with financial, managerial or operational weaknesses that threaten their continued viability. The FDIC does not publish the names of the institutions that it defines as problem institutions.
Of the 7,667 institutions that were federally insured as of December 31, 2010, the FDIC rated 884 as problem institutions, or about 11.5% — or one out of nine — of all banks in the country. These problems banks represented $390 billion in assets. These year end 2010 figures compare with the 702 banks rated as problem institutions at the end of 2009, representing $402 billion in assets.
The year-end 2010 tally of problem banks is not only up from the end of 2009, it is also up from the end of the third quarter of 2010. There were 860 problem institutions as of September 30, 2010, representing $379 billion in assets.
Though the number of problem institutions has continued to increase, the rate of increase has slowed. The FDIC noted in its press release that the rate of increases in the number of problem institutions has declined in each of the last four quarters.
The number of problem institutions as of the end of 2010 is the largest number of problem institutions since March 31, 1993, when there were 928.
The number of problems institutions has continued to grow even as the number of bank failures has continued to mount, which has the effect of reducing the number of institutions rated as problems. The 157 bank failures in 2010 were the highest number of bank failures since 1992 (when 181 banks failed.) Though the FDIC stated in its press release that it expects 2010 to be the high water mark of the current bank failure wave, 22 additional banks have failed already in 2011, putting this year’s bank closure pace ahead of last year’s.
Overall, however, the news in the Quarterly Banking Profile was relatively good. The FDIC characterized 2010 as a "turnaround" year, one in which the banking industry reported four consecutive quarters of positive income. The industry’s fourth quarter aggregate profit of $21.7 billion represented a $23.5 billion increase from the industry’s $1.8 billion loss in the year prior quarter. Almost two thirds of reporting institutions reported improvements in quarterly net income from a year ago. Much of the improvement in earnings is attributable to reductions in provisions for loan losses.
The DealBook blog’s summary of the FDIC’s report can be found here.
More Investors Opting Out?: Luke Green has an interesing February 23, 2011 post on his Risk Metrics Insights blog (here) about the number of large institutional investors that have opted out of the $624 million Countrwide securities class action settlement. As many as 33 large investors have opted out of the settlement, which has resulted in changes to the class action settlement, including the reduction of the settlement amount to $601.5 million. Many of the opt outs apparently have initiated separate litigation, as well. Green notes that there are a host of arguments against and in favor of opting out, but he nevetheless asks whether the willingness of large investors to opt out possibly represents a larger trend.
D&O Case Law Survey: The policyholder side coverage law firm Lowenstein & Sandler has published a "Review of 2010 Case Law on D&O Insurance Coverage," which can be found here. The memo provides brief reviews of critical D&O insurance coverage decisions from the past year.