Increased litigation costs led to decline in bank profits in Q3 - FDIC report
A report from the Federal Deposit Insurance Corp said increased litigation at one unnamed institution was the main reason why profits of FDIC-insured lenders and savings institutions fell in the third quarter. Banks earned USD 36 billion in the third quarter this year, a decrease of USD 1.5 billion from what they earned in the same period last year. The FDIC noted that litigation cost at one bank which had increased by USD 4 billion contributed a huge part to the profit decline.
Although the FDIC report did not specifically state the name of the bank that had caused the plunge, a Silicon Valley Business Journal report said it's safe to bet that the litigation expenses came mainly from JPMorgan Chase which said its legal costs for the third quarter was pegged at USD 7.2 billion.
The FDIC report also added that half of the 6,891 financial institutions that were insured by the regulator posted gains while only 8.6% of the banks did not profit in the third quarter. The number of banks that were unprofitable in the same period last year was pegged at 10.7%. The report added that mortgage activity and well as asset sales revenues had also decreased.
FDIC Chairman Martin J. Gruenberg said "Most of the positive trends we have been seeing in industry performance continued in the third quarter. Fewer institutions reported quarterly losses, lending grew at a modest pace, credit quality continued to improve, more banks came off the 'problem list,' and fewer banks failed."
Fewer banks have now made it to the so-called "problem list" of the FDIC. For the third quarter, only 515 banks made it to the list compared to the 888 banks in the 2011 first quarter. In the third quarter last year, there were 12 FDIC-insured institutions that failed. However, the number was halved in the same period this year.
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