When the third quarter ends next week, so will the banking industry's six-quarter streak of record earnings.
Six large banking companies have already disclosed substantial third- quarter losses tied to international operations, and more bad news is expected.
Though experts are predicting banks will have earned $14.5 billion to $15 billion in the three months ending Sept. 30, commercial bank profits were still robust in the second quarter, topping $16 billion for the first time.
The brewing trouble was evident in an otherwise-upbeat quarterly report released Tuesday by the Federal Deposit Insurance Corp.
At June 30 just 0.94% of all commercial bank loans were noncurrent-the lowest percentage in the 17 years banks have been reporting these data.
And though total noncurrent loans declined $413 million in the second quarter, to $29 billion, noncurrent loans to foreign borrowers increased $167 million, to $2.685 billion.
At June 30 noncurrent loans to foreign borrowers made up 9.23% of all noncurrent loans.
By comparison, in June 1997 the $1.569 billion of noncurrent loans to foreigners were just 5.49% of total noncurrent loans, according to FDIC researchers.
Loan-loss reserves rose $235 million, to $5.3 billion. "The increase was entirely the result of a 98.3% rise in provisions related to banks' international operations," the FDIC said in its report.
Net chargeoffs were up 11.5%, to $4.9 billion in the 12 months ended June 30. Of that total, credit card loans accounted for $3 billion, or 61.8%, and international operations accounted for $299 million.
Commercial banks' domestic operations produced solid returns last spring. The FDIC said fee income accounted for a record 40.2% of net operating revenue in the second quarter. Noninterest income, particularly from trust services, totaled $30.7 billion, up 5% from the first quarter and 21.3% from the year-earlier period.
Net interest income increased 4.7% in the second quarter, to $45.5 billion.
"The negative effect of lower net interest margins was outweighed by growth in interest-bearing assets," the FDIC said.
The industry's net interest margin was 4.10% in the second quarter-the second-lowest quarterly margin in the last seven years.
During the 12 months ended June 30, total assets grew 8.6%, to $5.18 trillion. Earning assets hit $4.46 trillion, and total loans were $3.09 trillion-both 8% increases.
Commercial and industrial loans jumped 12.6% in the year, to $850 billion. Banks' securities holdings declined $10.9 billion in the quarter, to $894 billion but were up $74 billion from a year earlier.
Deposits increased $38.9 billion in the quarter, to $3.5 trillion, with foreign office deposits rising $20.5 billion.
Equity capital rose $16.1 billion in the second quarter, to $446 billion.
At June 30 intangible assets were 17.1% of equity capital, up from 14.1% a year earlier.
"Goodwill and other intangible assets have increased by more than one- third as a result of heightened merger and acquisition activity," the FDIC said.
The total of commercial banks fell below 9,000 for the first time, to 8,984; 91 banks were absorbed in mergers, 49 banks were started, and one failed.