U.S. bank credit-card writeoffs up 27% WASHINGTON (AP) — American commercial banks wrote off $2.8 billion in credit card debt in the April-June period, up nearly 27 per cent from a year earlier as the economy dragged and personal bankruptcies rose, the Federal Deposit Insurance Corp. reported Wednesday.

Despite this, "we're not seeing a general downturn in banking," said Donald Powell, the new FDIC chairman. "They're still earning a lot of money."

Banks earned $19.2 billion (U.S.) in the second quarter, down four per cent from record high profits of $19.9 billion in the first three months of the year but up 31 per cent from $14.6 billion in the second quarter of 2000, the preliminary results showed.

The second-quarter results do not reflect the failure of Superior Bank, a $1.9-billion thrift in the Chicago area battered by huge losses on mortgage loans to high-risk borrowers, which was seized by federal regulators on July 27 and now is operating under FDIC control.

Superior, half-owned by the multibillionaire Pritzker family, is expected to cost the federal insurance fund $500 million, which would make it one of the costliest failures of a U.S. financial institution.

Regulators are taking a harder look at banks and thrifts that are heavily involved with borrowers who have blemished credit histories, known as "subprime" lending.

While many banks are making big profits on these loans, they're more likely to find themselves in trouble than other banks.

Subprime lending was a factor in seven of the last 19 bank failures, according to the FDIC, which insures accounts up to $100,000.

Powell told reporters Wednesday that the FDIC is closely watching banks that engage in subprime lending but additional failures are not expected.

He noted that the second-quarter jump in credit card debt that banks wrote off as uncollectible accompanied a rise in personal bankruptcy filings.

"Banking reflects the general condition of the economy — one follows the other," he said.

Bankruptcy filings by U.S. consumers and businesses leaped 24.5 per cent in the April-June period, and are on track to surpass the record year of 1998, when 1,442,549 cases were filed, according to the American Bankruptcy Institute.

Personal debt is at an all-time high, and the amount of income Americans are dedicating to making payments is at levels unseen in 15 years. Mortgage delinquencies also are rising.

Among other "soft spots" noted by Powell, small banks — those with less than $100 million in assets — continued to experience erosions in profit margins.

Nonetheless, Powell said, "small banks are not going away. There will always be an independent bank in America."

At large banks, problems with commercial and industrial loans worsened, with writeoffs on those loans increasing nearly 77 per cent from a year earlier.

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-- Martin Thompson (mthom1927@aol.com), September 05, 2001

Answers

I'm much more concerned about the 77% increase in write offs of commercial and industrial loans by the big banks. By comparison, a 27% write off of credit card debt is a trifle.

-- Wayward (wayward@webtv.net), September 05, 2001.

I concur. The 77% figure, with the big banks being involved, is more frightening. I would think this story should be built around that fact, rather than just earning a mention at the end of the article. The credit card writeoff, if included, should play second fiddle.

-- Billiver (billiver@aol.com), September 06, 2001.

Often corporate journalists are not allowed to write a story as they originally desired, as it must go thru several layers of editing first. Most people do not read an article past the "11th paragraph" and thus the meat or substance will usually be found buried near the end. I often think this is a secret defense mechanism to allow "bits" of the truth to sneak out or trickle down past the "censors". Often the headline is irrelevant or opposite to what the article is actually trying to say. This is a classic example. Imagine a scary, TRUTHFUL headline: Large Bank Loan Write-offs Increase 77%...Panic.

All newspapers have had access to the wire services for decades but many edit and rewrite with a political bias in the typical mid-sized daily newspaper. Compare the typical UPI/AP/Reuters wire service article with the same final product in your hometown newspaper. You will often find paragraphs "missing". Presumably to make room for that "local car dealership ad" or some such argument. Thus the need for alt.nooz like GICC!!! :>)

The Internet provides us ALL raw access to the articles in their original shape. This reinforces the notion that we must be vigilant and constantly "read for discernment" or between the lines.

-- William Wallace (braveheart@highlands.com), September 06, 2001.