Banking Blues: U.S. Bank Profits Plunge 44% in Q4 Amidst Big Firms Covering Failed Bank Costs

The final quarter of 2024 painted a grim picture for the U.S. banking sector as profits plummeted by nearly half, according to a report released by the Federal Deposit Insurance Corporation (FDIC) on Thursday. (U.S. Bank Profits Plunge) Large firms were hit hard as they began shouldering hefty fees aimed at recouping costs incurred by several bank failures earlier in the year.

U.S. Bank Profits Plunge:- The FDIC’s report revealed that approximately 70% of the staggering 43.9% decline in quarterly bank profits could be attributed to specific, non-recurring expenses at major banks. Chief among these expenses was a special assessment fee imposed on larger banks by the FDIC to replenish its deposit insurance fund. This move came in response to significant losses suffered by the insurance fund following the failures of Silicon Valley Bank and two other major firms.

Despite the downturn in profits, the FDIC noted that overall bank profits for the entirety of 2023 were down by 2.3%, amounting to $257 billion. However, this figure still surpasses pre-pandemic levels, providing a glimmer of hope amidst challenging economic conditions.

On a positive note, the report highlighted that bank deposits experienced a 1.1% increase in the fourth quarter, marking the first uptick in nearly two years. Additionally, unrealized losses on securities, which had previously burdened some bank balance sheets, decreased by 30.2% to their lowest level since the second quarter of 2022.

Despite these positive indicators, concerns lingered as non-current loans rose by 0.86% and the net charge-off rate climbed to 0.65%. Sectors such as credit card and commercial real estate bore the brunt of these challenges, with charge-off rates reaching levels not seen since 2012.

Adding to the complexity of the situation, the FDIC identified eight additional banks to its “problem bank” list, bringing the total to 52. However, these troubled institutions represent just 1.1% of total institutions and have assets totaling $66.3 billion.

FDIC Chairman Martin Gruenberg acknowledged the ongoing risks facing the banking industry, citing factors such as inflation, volatility in market interest rates, and geopolitical uncertainty. Gruenberg emphasized the importance of monitoring certain loan portfolios, particularly those tied to office space and other forms of commercial real estate, which continue to exhibit signs of deterioration.

As the banking sector navigates these challenges, stakeholders remain vigilant, seeking to address vulnerabilities and bolster resilience in the face of an uncertain economic landscape.