Banks Getting Healthier

The Federal Deposit Insurance Corp. reported that commercial banks and savings institutions insured by the agency reported an aggregate profit of $35.3 billion during the first quarter of 2012, a $6.6 billion improvement compared with the first quarter of 2011.

The Federal Deposit Insurance Corp. reported on Thursday that commercial banks and savings institutions insured by the agency reported an aggregate profit of $35.3 billion during the first quarter of 2012, a $6.6 billion improvement compared with the first quarter of 2011. This is the 11th consecutive quarter that earnings have registered a year-over-year increase.

So on the whole, banks are in increasingly better shape. But bank lending hasn’t increased as consistently. The FDIC also reported that loan balances declined by $56.3 billion (0.8 percent) during the first quarter, after three consecutive quarterly increases.

The number of “problem” institutions declined from 813 to 772, the fourth quarterly drop and the smallest number of “problem” banks since year-end 2009. Sixteen insured institutions failed during the first quarter, the smallest number of failures in a quarter since the fourth quarter of 2008, when there were 12. Banks currently own $11.08 billion worth of REO properties (one to four units), down from $11.64 billion in 4Q11, but the FDIC doesn’t tabulate the number of REO properties, only their aggregate carrying value.

Mortgage rates edge to new record lows

According to the latest Freddie Mac Primary Mortgage Market Survey, released on Thursday, 30-year mortgage rates have fallen to 3.78 percent, which us generally agreed to be the lowest rate since the introduction of Arabic numerals to the West (actually in the last 40 years). At this time last year, the 30-year rate averaged 4.6 percent.

At the same time, and hardly coincidentally, the Mortgage Bankers Association said on Thursday that its index measuring mortgage loan application volume for the week ending May 18 was up 3.8 percent compared with the previous week. The MBA’s Refinance Index increased 5.6 percent from the previous week.

“Continuing negative developments in the sovereign debt crisis in Europe, particularly in Greece and Spain, as well as the recent French elections… helped push the US 10 Year Treasury yield below 1.7 percent last week,” Michael Fratantoni, MBA’s vice president of research and economics, noted in a press statement. “Mortgage rates again dipped to new record lows in the survey, which spurred more borrowers back into the refinance market… the HARP share of refinance applications was essentially unchanged over the week at 28 percent, so it was not the primary driver of the increase over the previous week.”

Unemployment claims edge down

The Bureau of Labor Statistics reported on Thursday that initial unemployment claims for the week ending May 19 were 370,000, a downtick of 2,000 from the previous week’s revised figure. The less volatile four-week moving average was also 370,000, but that represented a drop of 5,500 from the previous week.

Generally speaking, the four-week average is still relatively high for a period of recovery, even though the downward trend since the worst of the recession is clear. The last time the average was this high during economic recovery was during the late 1970s, a time remembered for post-recessionary malaise.

Wall Street gyrated a lot on Thursday, down most of the day, but ended mixed. The Dow Jones Industrial Average gained 33.6 points, or 0.27 percent, while the S&P 500 was up 0.14 percent. The Nasdaq lost 0.38 percent.