Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, June 13, 1990 TAG: 9006130504
SECTION: BUSINESS PAGE: C-5 EDITION: EVENING
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Nationally, commercial banks earned $6.2 billion in the first three months of 1990, the Federal Deposit Insurance Corp. said Tuesday. The performance, except for a sharp earnings dip in the last half of 1989, was in line with bank profits over the past two years.
But the overall performance masked dramatic turnarounds in some states.
Texas banks, which lost $42 million during the first quarter of 1989, turned a profit of $164 million in the first quarter of this year. It was their first quarter in the black since the last quarter of 1985.
Massachusetts banks went the other direction. They earned $202 million in the first quarter last year but lost $171 million in the January-March 1990 period, the worst loss of any state. The other states to post losses were New Hampshire and Rhode Island - which border Massachusetts - and Arizona.
Economists said the reversal was telling evidence of the phenomenon of rolling recessions that have moved from region to region while the economy nationally has expanded for more than seven years.
"One of the characteristics of the 1980s was the rolling recession," said James McDermott, an analyst with Keefe, Bruyette & Woods, a New York securities firm. "Now we are having rolling recoveries as well. As banks in the Northeast experience pressure, banks in the Southwest are showing signs of stability and in some cases slight improvement."
The problems in both Texas and Massachusetts stem from sharp drops in real estate values. But now Texas real estate is recovering as New England's declines.
In Massachusetts, 9.22 percent of banks' real estate loans were delinquent in the first three months of 1990, up from 6.89 percent in the previous quarter. In Texas, the delinquency rate fell from 10.34 percent to 6.76 percent.
The FDIC said much of the improvement in Texas, however, could be attributed to the agency's bank rescues.
"Absent government assistance, there are no indicators yet of a strong performance rebound by Texas banks," it said.
Economists said tough action by regulators forcing New England banks to take losses this year could benefit them in the long run.
"Nineteen-ninety is going to be a down year for a lot of banks, but it's conceivable if we get through 1990 without a significant weakening of the economy that they could resume healthy growth," said Robert Litan of the Brookings Institution, a Washington-based think tank.
FDIC Chairman William Seidman characterized bank performance nationally as "not a bad result given all the publicity given to real estate problems."
But analysts said it would take a downturn at only a few large banks to cause trouble for the insurance fund, which posted back-to-back losses in 1988 and 1989, even if most of the industry is healthy.
"The FDIC can still lose its shirt on the bottom 10 percent. In fact, it can lose everything it's wearing and everything in the house," Litan said.
The percentage of banks losing money rose to 10.15 in the first quarter from 9.12 percent in the fourth quarter of 1989.
by CNB