FDIC Quarterly Banking Profile Takes a Back Seat to Bernanke
According to the report, FDIC-insured financial institutions earned $34.7 billion in net income in the fourth quarter down from $37.6 billion in the third quarter. Earnings continue to be buoyed by the reduction of loan loss provisions and rising noninterest income, not by a significant increase in interest income from new loan issuance as tight credit standards continue.
Year over year net income was up 36.9%, but net interest income, the life-blood of the banking system, registered a $2.7 billion (2.5%) decline. This is a sign that the "Great Credit Crunch" continues.
I will drill down into the FDIC data in subsequent posts focusing on the impact to the housing market, money center and regional and community banks. I will say that community banks remain reluctant to lend to developers and home builders as legacy C&D loans remain elevated at $203.9 billion at the end of 2012.
On Tuesday, the stock market regained some of Monday's lost ground, as Fed Chief Ben Bernanke re-iterated his pledge to continue QE3 and QE4 until the unemployment rate declined to 6.5%. Bernanke concluded that Fed policy was helping the housing market recovery and Tuesday's housing data supported his opinion.
Tuesday began with the January readings for the S&P Case-Shiller home price indices. The 20-City Composite, the one I focus on, showed that home prices rose by 6.8% in 2012. The index shows that home prices are still down 30% from their June/July 2006 bubble peak, despite an 8% to 9% gain since the March 2012 low. If you bought your home at the beginning of the new millennium your home has appreciated by 46.0%.
At 10 a.m. as Bernanke began his Congressional testimony and subsequent Q&A we learned that new home sales surged 15.6% in January to an annual rate of 437,000, but this is old news given the slippage in home builder confidence in February.
Despite this anomaly the National Association of Home Builders indicates that a double-digit pace of new home sales will be difficult to sustain given the challenges faced by the industry; credit availability, difficult appraisals, dwindling supply of prime lots, spot shortages of skilled labor and rising materials costs. The supply of new homes remain near historical lows at 150,000.
Also at 10 a.m. we learned that the Conference Board's reading on Consumer Confidence rose to 69.6 in February versus a downward revised reading of 58.4 in January. While this reading was above expectations, keep in mind that this index is tracking well below the neutral 90 to 100 range, as shown by the chart below, courtesy of Dshort Advisor Perspectives.