Banks’ Profits Inch Back Up After Bad Year

WASHINGTON — Earnings at the nation’s commercial banks are rebounding from the worst year since the Depression in every region of the country except the Southwest, the government said Tuesday.

The Federal Deposit Insurance Corp. said the 13,541 banks it insures collectively earned $5 billion in the first three months of this year, down somewhat from $5.3 billion in the same period in 1987.

However, earnings would have hit a new high if not for the huge $1.49-billion loss at a single Dallas bank holding company, FDIC Chairman L. William Seidman said.

Banks’ first-quarter losses in the Southwest totaled $1.64 billion, 90% of that from First RepublicBank Corp.

FDIC has already pumped $1 billion into First RepublicBank, Texas’ largest banking organization, and may have to spend another $1 billion to attract a buyer to take it over.

Seidman said FDIC is negotiating with potential investors and hoped to put First RepublicBank back on its feet in the “reasonably near future.”

Last year was the worst since the Depression for commercial banks: 184 banks failed, a record high, and banks as a whole earned only $3.6 billion, a record low, as big banks added to their reserves in anticipation of losses on loans to developing countries.

Banks this year are continuing to fail at the 1987 rate. Seventy-five had closed their doors as of last Friday, 32 of them in Texas.

Fewer Problem Banks

But otherwise Seidman painted a generally optimistic picture for 1988.

The number of banks on FDIC’s problem list has dropped below 1,500 for the first time in two years, he said. There were 1,491 such institutions at the end of March, compared to a peak above 1,600 in mid-1987.

The big money-center banks have written off about 25% to 30% of their Third World loans, and that alone was responsible for much of last year’s depressed earnings. Those reserve levels still look reasonable, he said.

Prospects are also looking up for banks in the Midwest, a region where banks were affected by hard times on the farm. The percentage of Midwest banks reporting losses fell from 13.5% in the first quarter a year ago to only 7.6% this year.

Even in the Southwest there is reason for hope, Seidman said. Twenty-seven percent of the banks in the region lost money in the first three months of this year, compared to 36% for all of last year.

“We expect the worst for Texas will be behind us after 1988,” he said. “The smaller banks in Texas are beginning to show some improvement. Nothing large, but they are moving in the right direction.”

Insurance Fund Solid

Seidman also said he believed that nationally banks were “reasonably well protected” against rising interest rates and could withstand a recession next year, provided the downturn is not extraordinarily deep or extended.

He described his agency’s insurance fund as “solid,” even though the price tag on the First RepublicBank bailout may cause the fund to register its first loss since it was established in 1934.

“We think we can handle anything we see on the horizon,” he said.

Despite record failures and record low earnings, commercial banks are still in far better shape than the 3,120 federally insured savings and loan institutions, which lost $6.8 billion last year. First-quarter figures are not yet available for thrifts.