Seidman Sees No Need To Hike FDIC Premium

WASHINGTON -- The chairman of the Federal Deposit Insurance Corp. said Tuesday he has no plan to increase the deposit insurance premium his agency charges banks.

"I think the banking industry is at or near the maximum premiums that they can pay in the long run and be competitive," said FDIC Chairman L. William Seidman.

Mr. Seidman made his remarks while unveiling the FDIC's second-quarter report on the U.S. banking industry, which showed that earnings declined by about 12% from the year-earlier period but indicated that the industry's long slide may be bottoming out.

Speaking of the FDIC's Bank Insurance Fund, Mr. Seidman said, "Right now, we are running at levels that would say the worst-case scenario is much too pessimistic."

He added: "Much will depend on how four or five major institutions do over the rest of the period. . . . Some of those we're encouraged about now, some not so encouraged."

Analyst Cites Candidates

Mr. Seidman would not identify the ailing banks in question, but industry analyst Bert Ely said three of the five had to be Southeast Bank, Miami; First City Bank, Houston; and Hibernia Bank, New Orleans.

Hiking insurance premiums could do more harm to the industry than good, warned Mr. Seidman.

The current premium of 23 cents for every $100 of deposits took effect on June 30.

Muddling Along

The second-quarter results were disappointing but not disastrous. "The banking industry [is] bumping along the bottom of the recession," Mr. Seidman said. "It doesn't look like it's getting much worse, but it doesn't look like it's getting a whole lot better."

The industry earned $4.6 billion in the second quarter, down 12% from the $5.4 billion in the same quarter last year and off 17.8% from $5.6 billion in the first quarter.

Profits Rose at Half the Banks

Almost 88% of the industry was profitable and 50% of the banks reported higher profits than a year before. Another encouraging sign: Problem real estate loans grew at a rate of only 2.8%.

Nonetheless, the FDIC's problem bank list got bigger. As of this week, the number of banks considered failure candidates is up slightly to 1,072, or nearly a tenth of the 12,150 banks covered. The failure candidates hold a record $445 billion in assets, Mr. Seidman said.

Noncurrent Loans Decrease

Bank earnings in the first half of 1991 fell to $11.6 billion, $1.4 billion shy of the first-half 1990 level. Even so, Mr. Seidman forecast full-year 1991 earnings of $19 billion, which would beat 1990's performance by more than $2 billion.

One big improvement: The numbers contained the first decrease since late 1989 in noncurrent loans, which are loans in arrears between 30 and 90 days. They fell by $232 million in the quarter. Nonetheless, past-due loans - those that haven't been serviced in more than 90 days - remained 25% higher than a year ago.

Mr. Seidman attributed lower profits in the banking industry to larger provisions for potential loan losses. The industry set aside $8.2 billion to cover future losses, which was $1.7 billion more than the loss provision taken in the second quarter of 1990 and $1.1 billion more than was reserved in the first quarter of this year.

Banks in the West and New England made the largest loss provisions, the FDIC said. Banks in these regions also had the largest declines in net income.

Chargeoffs in New England

Banks in New England charged off $5.5 billion in the second quarter - 62% of all chargeoffs in the industry. Banks in the West saw the largest increase in noncurrent loans.

Other highlights of the report:

* Industry assets grew just $26 billion, or 0.79% in the second quarter, and with demand slack, total outstanding loans decreased by $14 billion.

* Equity capital increased $3.6 billion in the quarter to 6.7% of total assets - the highest level since 1975. But just $1.2 billion of that increase came from retained earnings, as banks paid out 73% of their second-quarter earnings in dividends.

* The industry continues to take advantage of low interest rates. Net interest income of $30.3 billion in the second quarter was $1.6 billion higher than in the same period a year earlier.

But noninterest expenses keep rising, the FDIC reported, noting particularly the cost of holding bigger inventories of troubled assets and higher deposit insurance premiums.

* The banking industry got smaller. At June 30, there were 12,150 commercial banks - down from 12,502 at yearend 1990, and down from more than 14,000 five years ago.

* Despite increases in loan-loss reserves, the ratio of reserves to bad loans has been falling for six quarters, the FDIC said. Banks now have 65 cents for every $1 of noncurrent loans, down from 87 cents at the end of 1989.

"One of the things that ... concerns me is that the reserving against bad assets is not as high as it was," Mr. Seidman said. "That is something that will have to be leveled out over time."

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