Bank Holding Companies
The Flow of Funds accounts from the Federal Reserve System just came out today. This gives us a chance to look at parts of the financial system that we do not get to look at on a more frequent basis.
In terms of the banking sector, one area of interest at this time is the activity going on in bank holding companies. In terms of assets, bank holding companies, at the end of the third quarter, 2009, are holding $2.8 trillion in assets, up from $1.9 trillion one year ago and up from $1.8 trillion at the end of 2007. So assets in bank holding companies rose by almost 50% in the past year.
The large increase in assets came in the area of investments in nonbank subsidiaries. The rise from the end of the third quarter of 2008 was $537 billion, or 135%. The increase since the end of 2007 was $592 billion, or an increase of 172%
These holding companies also increased their investment in bank subsidiaries as well, but only by $164 billion or by 14% since the end of the third quarter 2008. The increase since the end of 2007 was $188 billion.
Financing this increase in assets was an increase in bonds issued by these holding companies and in residual equity. The net increase in corporate bonds issued was $508 billion for the year ending in the third quarter of 2009. The net increase since the end of 2007 was $553 billion.
There was roughly an $400 billion increase in the residual equity of these organizations during this time period. The increase in residual equity since the end of 2007 was approximately $500 billion.
These increases in bank holding company assets took place at the same time that total assets in U. S. chartered commercial banking sector rose only by about $139 billion from the third quarter of 2008 to the third quarter of 2009. It should be noted that during this same time period total bank loans in the banking industry declined by almost $383 billion, with reductions taking place in every category of loan.
Note that since the end of the third quarter 2008, vault cash and reserves at the Federal Reserve rose by $384 billion. The increase since the end of 2007 was $540 billion.
It is obvious that banks and bank holding companies are not doing the ordinary business of banking.
The commercial banks, themselves, are becoming “pools of liquidity”, but they are not lending.
It seems that bank holding companies, however, are further diversifying into nonbank subsidiaries because of the tremendous opportunities for profit that are now available to them in these areas. Also, it seems as if this is all happening for the largest banks and the largest bank holding companies.
So, here is the picture: commercial banks are essentially static right now; nothing is happening in the industry as a whole.
Bank holding companies are moving ahead full steam: and what they are doing is very, very profitable!
Saving Institutions
The thrift industry continues to shrink!
In the last four quarters, the total financial assets in savings and loan associations, mutual savings banks, and federal savings banks fell by $145 billion, or by about 10%, to just $1.4 trillion. Since the end of 2007, financial assets have fallen by $442 billion, or by about 25%.
One really has to wonder about the existence of this part of the finance industry and the need for such an expensive regulatory structure to support it.
Its main reason for existence, the issuing of mortgages, continues to erode as mortgages on the books of these savings institutions fell by $155 over the past year, an 18% decline. Since the end of 2007, mortgages at these institutions fell by $367 billion, a decline of one-third. Statistics indicate that, on average, institutions in this industry are just about breaking even, profit-wise.
Although it is not getting a lot of headlines in the press, the savings industry is not doing too well. Maybe it is now too insignificant to warrant much attention!
Credit-Unions
Credit unions continue to grow. They ended the third quarter at $873.4 billion in total financial assets, increasing by $73 billion over the last four quarters.
One wonders when the total assets at credit unions are going to exceed that at savings institutions.
Although the totals are not large, credit unions continue to increase their loan portfolios across the board.
The total amount of credit extended by credit unions was $592 billion at the end of the third quarter 2009, roughly two-thirds of the $875 billion in loans on the books of savings institutions. Credit unions have only about 63% of the assets that savings institutions do.
Mortgages on the books at credit unions are about 44% of the amount of mortgages that sit on the books of savings institutions, up from 35% at the end of the third quarter in 2008. But, consumer loans are 308% of the total of consumer loans at savings institutions. This is just a little higher than it was one year ago.
Credit unions seem to be doing very well and continue to be on the rise!
Showing posts with label savings institutions. Show all posts
Showing posts with label savings institutions. Show all posts
Thursday, December 10, 2009
Thursday, October 1, 2009
The Problems of the Savings Industry
In an earlier post I reported that the weakness being experienced in the year-over-year rate of growth of the M2 measure of the money stock could be attributed to shifts in deposits from thrift institutions into commercial banks. (September 25: http://seekingalpha.com/article/163456-thrift-struggles-dragging-down-m2-growth.)
On Tuesday, September 29, I wrote about commercial banks and how bank holding companies had raised a substantial amount of funds in the capital markets from the second quarter of 2008 to the second quarter of 2009 but most of the funds raised by these institutions went into non-bank subsidiaries. Chartered U. S. banks saw some increase in assets over this time period but these funds went into cash assets, government or agency securities, and mortgages, mostly of the commercial type.
We also have data from the flow-of-funds accounts that give us some insight into what is happening at savings institutions and credit unions. The real success story seems to be that connected with credit unions. The credit union industry ended the second quarter of 2008 with almost $900 billion in financial assets. All other savings institutions had assets of about $1,400 billion and the Office of Thrift Supervision (OTS) reported that thrift institutions had assets that amounted to only $1,100 at the end of the second quarter.
Who would have ever thought that the credit union industry would ever be about the same size as the thrift industry?
Credit Unions grew by $73 billion, year-over-year, and the credit that they extended seemed to expand during this time period at a fairly steady pace.
The bad news: savings institutions, which include savings and loan associations, mutual savings banks, and federal savings banks, performed abysmally. For one, industry assets, according to the OTS fell by 27% over the last year, reflecting the failure and sale (to commercial banks) of several large thrift institutions. Total loans at these institutions fell by 35%.
The total decline in financial assets for the industry was $420 billion: the mortgage portfolio of the industry declined by almost a third or $360 billion. Consumer credit also declined by about $14 billion.
According to the OTS, the industry as a whole earned a profit of $4 million—yes, that’s million—in the second quarter. This is the first quarterly profit since the third quarter of 2007.
The industry added almost $5.0 billion—yes, that’s billion—to loan loss provisions in the second quarter. This loan loss provision was exceeded in history by only five other quarters. However, these five other quarters were the five quarters just preceding the second quarter of 2009.
The OTS reports, however, that “96.2% of all thrifts exceed ‘well-capitalized’ regulatory standards.” These institutions, we are told comprise 95.9% of industry assets but most of them are relatively small. So, institutions with approximately $45 billion in assets are in not “well-capitalized” thrifts, by industry standards. The number of problem thrifts reached 40 at the end of the second quarter.
Yet the industry has about $40 in what are called troubled assets, about 3.5% of Total Assets. Troubled assets are noncurrent loans and reposed assets.
It seems as if the thrift industry is dying and needs to be consolidated and merged into the commercial banking industry. (And this from a person, myself, who successfully turned around two thrift institutions.) I don’t believe that there should be a merger of thrift institutions with the credit union segment of the industry. Credit unions seem to be doing something right. (I have worked, in recent years, with groups to form three credit unions and I believe that credit unions can fill a very important gap in consumer finance, credit and banking services.)
The thrift industry played a very important role in the history of the United States (and elsewhere in the world). In the current era of securitization and financial innovation, I believe that savings institutions have exceeded their useful lifetime. The savings and loan crisis saw the collapse of the industry and the 2000s just verified that the industry really needs to continue to shrink and become incorporated into other segments of the market.
On Tuesday, September 29, I wrote about commercial banks and how bank holding companies had raised a substantial amount of funds in the capital markets from the second quarter of 2008 to the second quarter of 2009 but most of the funds raised by these institutions went into non-bank subsidiaries. Chartered U. S. banks saw some increase in assets over this time period but these funds went into cash assets, government or agency securities, and mortgages, mostly of the commercial type.
We also have data from the flow-of-funds accounts that give us some insight into what is happening at savings institutions and credit unions. The real success story seems to be that connected with credit unions. The credit union industry ended the second quarter of 2008 with almost $900 billion in financial assets. All other savings institutions had assets of about $1,400 billion and the Office of Thrift Supervision (OTS) reported that thrift institutions had assets that amounted to only $1,100 at the end of the second quarter.
Who would have ever thought that the credit union industry would ever be about the same size as the thrift industry?
Credit Unions grew by $73 billion, year-over-year, and the credit that they extended seemed to expand during this time period at a fairly steady pace.
The bad news: savings institutions, which include savings and loan associations, mutual savings banks, and federal savings banks, performed abysmally. For one, industry assets, according to the OTS fell by 27% over the last year, reflecting the failure and sale (to commercial banks) of several large thrift institutions. Total loans at these institutions fell by 35%.
The total decline in financial assets for the industry was $420 billion: the mortgage portfolio of the industry declined by almost a third or $360 billion. Consumer credit also declined by about $14 billion.
According to the OTS, the industry as a whole earned a profit of $4 million—yes, that’s million—in the second quarter. This is the first quarterly profit since the third quarter of 2007.
The industry added almost $5.0 billion—yes, that’s billion—to loan loss provisions in the second quarter. This loan loss provision was exceeded in history by only five other quarters. However, these five other quarters were the five quarters just preceding the second quarter of 2009.
The OTS reports, however, that “96.2% of all thrifts exceed ‘well-capitalized’ regulatory standards.” These institutions, we are told comprise 95.9% of industry assets but most of them are relatively small. So, institutions with approximately $45 billion in assets are in not “well-capitalized” thrifts, by industry standards. The number of problem thrifts reached 40 at the end of the second quarter.
Yet the industry has about $40 in what are called troubled assets, about 3.5% of Total Assets. Troubled assets are noncurrent loans and reposed assets.
It seems as if the thrift industry is dying and needs to be consolidated and merged into the commercial banking industry. (And this from a person, myself, who successfully turned around two thrift institutions.) I don’t believe that there should be a merger of thrift institutions with the credit union segment of the industry. Credit unions seem to be doing something right. (I have worked, in recent years, with groups to form three credit unions and I believe that credit unions can fill a very important gap in consumer finance, credit and banking services.)
The thrift industry played a very important role in the history of the United States (and elsewhere in the world). In the current era of securitization and financial innovation, I believe that savings institutions have exceeded their useful lifetime. The savings and loan crisis saw the collapse of the industry and the 2000s just verified that the industry really needs to continue to shrink and become incorporated into other segments of the market.
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