Harry Terris

The profile of a typical bank failure has taken on a new shape in 2012, with the combustion of construction loan portfolios giving way business loan blowups.

Wells Fargo’s origination business has been operating at full steam, keeping the company’s mortgage servicing assets well above a cap proposed under Basel III. A new servicer compensation system could resolve the issue, but something has to give.

A group including $78 billion-asset M&T and $9 billion-asset Sterling Financial ratcheted up their servicing portfolios by a fifth or more in 2011. Nonbanks are scooping up problem loan servicing, but banks still have a distinct funding advantage.

Receiving Wide Coverage ...Stress Relief: As banks announced a wave of dividend increases and stock repurchase plans after getting their stress test marks from the Fed, an article in the Times foregrounded criticism that the capital payouts are too much and too soon. Luminaries, including Stanford's Anat Admati, denounced the central bank for irresponsibility and appeasement, and faulted the process for failing to reckon with potentially nightmarish legal liabilities. In the Journal, an article focused on the egg on Citi's face after the Fed blocked it from delivering on its long-time promise to begin returning capital to shareholders this year. "Heard on the Street" looked at leverage ratios under the most severe stress scenario, and commented that they appear "eerily reminiscent of levels seen at investment banks before the crisis."

Companies like American Express, Capital One and USAA have substantially expanded the amount of credit they offer to consumers through cards over the last two years, in contrast to the retrenchment at the three largest three issuers.

Buyers' stock has outperformed after about two-thirds of major deal announcements over the last nine months, hinting at a shift from the displeasure acquirers met with in late 2010 and early 2011.

Unused credit card lines fell another $21 billion in the fourth quarter as utilization rates, or loans as a percentage of available credit, continued to rebound.

Rich trading multiples for banking companies like Prosperity in Houston make accretive acquisitions relatively simple. Institutions with such powerful stock currencies are few, however.

Banks are back on billboards, in mailboxes, and over the airwaves. But what executives call "investment spend" can be heartburn-inducing profligacy to analysts and investors.

For all the anxiety over low interest rates, net interest margins are higher now than they were for much of the last decade. For banks with less than $10 billion of assets, NIMs have been climbing for two and a half years.

Much of the business ceded by B of A has been absorbed by Wells Fargo. Still, smaller lenders are making inroads as the giants scramble the playing field by shuttering origination channels, or exiting the business altogether.

Never mind the shadow inventory of homes ultimately destined for foreclosure. By some lights, the broader excess stock of housing – both for rent and for sale – is manageable, and grounds for a bull case on construction, and maybe construction lending.

Many small banks have never accepted that an exemption from the Durbin amendment will protect them from the measure's roughly 50% cut in debit interchange rates. Earnings at banks with assets of less than $10 billion appear to have been entirely untouched by the cap in the first quarter since its Oct. 1 implementation, however.

Failure has been the most common way out of enforcement actions in the current cycle, but outcomes may be improving.

The Durbin amendment has sapped debit card revenue, but swipe fees are contributing a growing share of earnings at large credit card businesses.

The underperformance of big bank stocks last year helped restore their yields to a rough parity with smaller peers, but actual quarterly payouts remained a small fraction of pre-crisis levels.

Safety-and-soundness orders continued to abate late last year in another sign that the banking industry is regaining its balance.

New defaults have tailed off and the pool of bad accounts against which to collect is aging. Yet recoveries have held steady or climbed at large issuers – even in the face of stiffening resistance over documentation problems.

Data published this month provides support for criticism of the small business lending program as a backdoor exit from Tarp for small banks. Institutions that used SBLF capital to refinance bailout infusions increased such loans at far lower rates than peers.

Even as releases of allowances for bad credit card loans continue to plump bottom lines, rising delinquency rates in the fall point to the first increase in quarterly chargeoff rates in a year and a half at three of the largest issuers.