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FDIC Data Reflects Continued Economic Slump


Case-Shiller shows stability in home prices, but this is probably just a pause.

Editor's Note: Richard Suttmeier is the Chief Market Strategist at ValuEngine is a fundamentally-based quant research firm in Princeton, New Jersey. ValuEngine covers over 5,000 stocks every day.

The Third Quarter FDIC Quarterly Banking Profile shows a deteriorating economy. Case-Shiller shows stability in home prices, but I project this to be just a pause.

The Number of Problem Banks increased dramatically in the third quarter to 552 from 416.

What's significant in this is that 50 banks failed in the third quarter up from 24 in the second quarter and 21 in the first quarter. An additional 29 banks have failed since the end of the third quarter. If you assume that the 50 seized banks were on the Problem List, the FDIC added 186 banks to the list in the third quarter.

Most bank failures and the 552 problem banks are overexposed to C&D and CRE loans, which I've been warning about since April 2006.

The Deposit Insurance Fund was in arrears by $8.2 billion at the end of the third quarter.

The FDIC notes that they have big enough cash cushion to make it to the end of the year when member banks must pony up $45 billion in pre-paid fees for 2010 through 2012. If you add the cost of the 29 failures so far in the fourth quarter, the Deposit Insurance Fund is $10.4 billion in the hole.

The FDIC expects bank closures to cost the Deposit Insurance Fund $100 billion through 2013, but by June 2013 the fund must return to 1.15% of insured deposits. This will be difficult without help from tax payers through the $100 billion line of credit with the US Treasury. The FDIC has a $500 billion temporary line of credit with the US Treasury, but considers tapping that as a last resort.

In my opinion with almost 3,000 banks overexposed to C&D and CRE loans, several banks won't be able to pre-pay Deposit Insurance Fund fees, which will put them on the FDIC list of Problem banks.

Noncurrent loans continue to rise at a faster pace than Reserves for Losses.

Reserves for Losses increased $9.2 billion in the third quarter, while Noncurrent Loans increased $34.7 billion. Year-over-year reserves are up 40.8% while noncurrent loans are up 95.7%. This puts significant stress on the banking system and extends "The Great Credit Crunch."

Year to Date Total Assets in the banking system are down $596 billion to $13.25 trillion.

Since the FDIC Quarterly Banking Profile is the Balance Sheet of the US economy, there's no way that the NABE forecast that GDP will return to $14.55 trillion by the end of 2010 can be achieved.

The FDIC Quarterly Banking Profile is the most important leading indicator for the US economy and the deterioration was worse in the third quarter than the second quarter, which warns that the recession hasn't ended and will continue at least through 2010. No double dip until the first dip ends.

The Case/Shiller Home Price Index showed that the 20-City Index fell 9.4% year over year, but with a modest bump of 0.3% for September versus August.

Fewer cities saw month-to-month improvements and prices are back to the levels of autumn 2003. Prices have room to renew a decline given the fact that home values are up 50% since the beginning of the new millennium.

Problems for home prices are the fact that one in four mortgages in the United States are now underwater, and mortgage delinquencies continue to rise along with the unemployment rate.

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