2010 US Banking Industry Forecast

Analyst: Bill Bradway

December 29, 2009

The FDIC released its Quarterly Banking Profile for 3Q2009 on November 24th along with the FDIC Call Report data for all FDIC insured banks and thrifts. A total of 140 charters associated with a net of 121 banking entities (due to multiple charters per entity) have been closed in 2009. Since the end of 3Q, 37 bank entities (representing 45 charters) were closed, lead by FBOP (nine charters), AmTrust, and United Commercial Bank, all Tier 1 institutions. The problem bank list expanded to 552, up from 416 in 2Q, 305 in 1Q and 252 at 4Q2008.

The industry consolidation continues at a steady pace. Our analysis of the industry as of 3Q2009 yields 7,066 commercial banks and thrifts, down by 56 from 2Q2009 and 102 from 4Q2008. The Bradway Research universal Profit Score algorithm was used to analyze this group of institutions. The Profit Score allows for a uniform and balanced analysis of all institutions, regardless of their size and consistently identified institutions that failed in 4Q2009. Since 4Q2008, a net change (which nets out 121 failed institutions in 2009) of 317 additional banks and thrifts now have a negative Profit Score and are losing money. At 3Q2009, a total of 2,013 institutions, or 28.5% of 7,066 institutions, had negative Profit Scores, up from 27% at 2Q2009 and 23.7% at 4Q08. Persistent industry pain warrants a continuous review of the future outlook.

• Will the industry’s woes will reach bottom in 2010 or 2011 and begin to recede?
• What does a more detailed analysis of the individual institutions reveal about the prospect of more failures?
• What is the outlook for bank IT spending in 2010?

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