U.S. banks in 2012 post highest profits since '06 -FDIC

WASHINGTON (Reuters) - The U.S. banking industry in 2012 recorded its highest earnings since before the 2007-2009 financial crisis, according to data released on Tuesday by the Federal Deposit Insurance Corp.

The FDIC said the industry's full-year earnings were the second-highest on record at $141.3 billion, an increase over 2011 of $22.9 billion, or 19.3 percent. But the head of the agency said growth would probably slow this year, and warned that bank profits could dive if Congress does not reach a federal budget agreement that prevents automatic cuts.

Bank earnings peaked in 2006 at $145.2 billion.

Much of the earnings growth in 2012 came from banks reducing the amount they set aside in case of losses on loans, the FDIC said. Banks also saw gains on loan sales and higher servicing income.

"While there is still room for further income growth, we don't expect the pace of earnings growth to continue at these levels," FDIC Chairman Martin Gruenberg said.

The report will likely be seen as a sign that the industry is healing after the financial crisis, although some bigger banks cut jobs last year to cope with persistent pressures such as declines in trading volume.

The industry's earnings for the fourth quarter of 2012 totaled $34.7 billion, up $9.3 billion, or 36.9 percent, from the same period in 2011, the FDIC said.

Loan balances rose during the quarter, driven by loans to commercial and industrial borrowers. Gruenberg said that was encouraging and would be a key factor going forward, when banks will have less ability to drive earnings by reducing the funds they set aside for potential loan losses.

But he said demand for credit could dry up, hurting the banking industry, if Congress does not step in to prevent $85 billion in federal government spending cuts from taking effect at the end of the week and the economy contracts as a result.

The impending cuts would affect a wide range of government programs, with the defense industry in particular expecting sequestration to hurt contractors and businesses that depend on spending by them and their employees. Many economists have warned the cuts could devastate the fledgling economic recovery.

"The industry recovery over these past three years has been aided by the slow but steady growth in the economy over that period," Gruenberg said.

"If something occurs to knock that off course...then that could have consequences for the industry," he said.

(Reporting By Emily Stephenson; editing by John Wallace and David Gregorio)

Source: http://news.yahoo.com/u-banks-2012-post-highest-profits-since-06-165305745--finance.html

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