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Too much supervisory attention?

The FDIC’s release of June 30th results for the nation’s Insured banks reveals total industry assets in excess of $14.4 trillion, loans receivable of nearly $7.6 trillion, a $10.8 trillion deposit base, and industry equity of $1.6 trillion, or a solid 11.3 % of total assets.

The industry’s tangible equity ratio, which excludes goodwill and other intangible, fell to 8.9% from the three month earlier 9.1% level.

Significantly reduced values of investment securities, due to rising second quarter interest rates, had a substantial negative impact upon the industry’s GAAP equity position.

For the second quarter and first half of this year, net income reported by all insured institutions aggregated to $42.2 billion and $82.5 billion, respectively. Accordingly, for the six months ending June 30, 2013, the nation’s banks reported an aggregate, annualized return on assets 1.2% and an aggregate, annualized return on equity of 10.2%. Both percentages suggest strong performance and are significant improvements from year earlier measures.

As of June 30, 2013, industry nonperforming assets fell, by 18.7%, to $273.8 billion (1.9% of total assets) from the year earlier $336.8 level (2.4% of total assets). Reportedly, all major loan categories now reveal reduced nonperforming asset numbers.

Recently, as part of our “Problem Asset Projection”, we called for, as of June 30th, tangible capital ratio of 9.1% and nonperforming assets equal to 1.6% of total assets. We would attribute our capital miss to be the result of the aforementioned increase in second quarter interest rates, a scenario to which we should have given greater emphasis. U.S. GDP data, now revised, shows improvement from preliminary reporting, and our nonperforming asset call indicates movement in the right direction. However our excess optimism should have been tempered by the recent words of FDIC Chairman Martin Gruenberg: “And the current interest rate environment creates an incentive for institutions to reach for yield, which is a matter of ongoing supervisory attention.”

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