Banking Industry Posts Large Loss, CRE a Concern

Despite widespread optimism about the broader economy, the commercial banking industry remains deep in crisis with commercial real estate loans a deep concern for regulators. In the second quarter the commercial banking industry lost $3.7 billion, credit quality dropped to all-time lows, the troubled-bank list reached a 15-year high and federal reserves backing deposits fell to their lowest level since the savings and loan crisis. Federal Deposit Insurance Corp. chief Sheila Bair said credit problems are now hitting a broader class of loans than just residential mortgages. "For now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry's bottom line," Ms. Bair said as the agency released its Quarterly Banking Profile. After a first-quarter profit tied in large part to the government's bailout of the banking sector, the industry's net quarterly loss was only its second since 1990. The FDIC cited a 33% rise in loss provisions from the year-ago quarter - to $67 billion - and huge writedowns on asset-backed commercial paper as main drivers for the decline. But perhaps more troubling were alarming signs of credit-quality deterioration. The net charge-off rate last quarter of 2.55% was the highest ever, exceeding the fourth-quarter record of 1.95%.