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Banks set quarterly record: $40B profit

WASHINGTON — U.S. banks earned more from January through March than during any quarter on record, buoyed by greater income from fees and fewer losses from bad loans.

The largest banks are increasingly driving the industry's profits, while many smaller institutions continue to struggle.

The industry earned $40.3 billion in the first quarter, the Federal Deposit Insurance Corp. said Wednesday. That's the highest figure ever for a single quarter. And it's up 15.8 percent from the first quarter of 2012.

Record profits show that banks have come a long way from the 2008 financial crisis. But the report sent a reminder that the industry is still struggling to help the broader economy recover from the Great Recession.

Only about half of U.S. banks reported improved earnings from a year earlier, the lowest proportion since 2009. That shows that the industry's growth is being propelled by the largest financial institutions.

Banks with assets exceeding $10 billion make up only 1.5 percent of U.S. banks. Yet they accounted for about 83 percent of the industry earnings in the January-March quarter. These banks include Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. Most have recovered with help from federal bailout money and record-low borrowing rates.

"The divide between the bigs and everybody else is just enormous," said Cornelius Hurley, a former counsel to the Federal Reserve Board who heads Boston University's Center for Finance, Law and Policy. "It's never been this concentrated."

As big banks push to earn fees from selling products to their customers, they're making fewer loans. And lending is vital to creating jobs and boosting the economy, Hurley noted.

Bank lending declined from the October-December quarter, the FDIC data showed, though it followed several quarters of increases.

And bank profits from interest charged fell 2.2 percent to $104 billion. The industry's average interest income as a percentage of loans on its books fell from 3.51 percent a year earlier to 3.27 percent. That's the lowest proportion in nearly seven years.

As a result, banks have sought to generate more revenue from fees, despite complaints from customers and consumer advocates.

Another sign of the industry's health is that fewer banks are at risk of failure. The number of banks on the FDIC's "problem" list fell to 612 from 651 as of Dec. 31.

And so far this year, only 13 banks have failed. That follows 51 closures last year, 92 in 2011 and 157 in 2010.

The 2010 closures were the most in one year since the height of the savings and loan crisis in 1992.

Banks set quarterly record: $40B profit 05/29/13 [Last modified: Wednesday, May 29, 2013 9:38pm]

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