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An Update on Emerging Issues in Banking

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For Your Information An Update on Emerging Issues in Banking

Twenty-Five Largest Banking Companies:
Second Quarter Net Income Dips Slightly; Asset Quality Worsens
This document is based on publicly available information provided by the companies it covers. It is intended for informational purposes only and does not represent official policy or supervisory guidance from the FDIC.

August 8, 2002

The 25 largest banking companies (25 Largest) earned $14.7 billion in the second quarter of 2002, according to recently filed public data releases. High net interest margins and an increase in loan volume contributed to strong earnings which produced a return-on-assets of 1.25 percent for the group. Net income was 33 percent higher than year-ago levels, but 9.1 percent lower than reported in the first quarter of 2002. Credit quality problems continued at these institutions, with chargeoffs rising 9.1 percent in the first quarter to $7.5 billion and nonperforming assets rising 5.4 percent to $39.3 billion. A detailed discussion of overall results and information on individual companies are available in the FDICís report, Twenty-Five Largest Banking Companies.

Net Income Remains Strong Due to Favorable Interest Rate EnvironmentD

The results indicate that overall large-bank earnings have remained strong in spite of the adverse effects of the recession that began in March 2001. While the signs of economic recovery suggest that overall credit quality may improve in future quarters, there remain several areas of concern. These include continued high rates of corporate bankruptcies and controversy over accounting and corporate governance issues, credit exposures in Latin America, and higher-than-expected losses in subprime portfolios. However, the resilient second-quarter financial performance of the 25 Largest bodes well for their ability to manage credit events that may accompany a challenging economic environment.

Send comments on this FYI to: J.R. Bauer jbauer@fdic.gov

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Last Updated 08/08/2002 fyi@fdic.gov