The U.S. banking industry enjoyed its second-most profitable year in history in 2012, according to a new report from the Federal Deposit Insurance Corp., but that may not be enough to save the jobs of thousands of bankers.
FDIC-insured banks reported full-year net income of $141.3 billion in 2012, up $22.9 billion or 19 percent from the previous year. This is the third consecutive year that net income in the industry increased, and the second-highest level of earnings the industry has ever recorded, behind only the $145.2 billion it reported in 2006.
"It's clear that banking is going in the right direction, and profits are going in the right direction," said Dick Bove, a banking analyst with Rafferty Capital Markets based in New York. "I think the core businesses of banking are doing very well, and I think that will carry forward into 2013."
Mr. Bove predicts the first quarter in 2013 will be the most profitable quarter in the industry's history.
Across the industry, JPMorgan Chase and Wells Fargo both recorded record earnings in 2012.
Wells Fargo, headquartered in San Francisco, reported record net income of $18.9 billion in 2012, which was up 19 percent from 2011. During the fourth quarter, the bank reported record net income of $5.1 billion, which was up 24 percent from the same quarter in the previous year. Earnings per share were $3.36 on the year, and 91 cents on the quarter, both records.
New York-based JPMorgan, the nation's largest bank, reported full-year net income of $21.3 billion in 2012 -- the third consecutive year the company reported record net income. During the fourth quarter, it showed net income of $5.7 billion, or $1.39 a share. Revenue was $24.4 billion for the quarter.
That increased revenue, however, isn't stopping JPMorgan from cutting jobs.
JPMorgan announced Tuesday it will eliminate as many as 19,000 positions over the next two years, as the company reshapes itself, including 4,000 jobs this year. Reductions in its mortgage unit are expected to total 13,000 to 15,000 jobs and in its community banking unit by 3,000 to 4,000 jobs by the end of 2014.
This comes in addition to the 1,200 job cuts JPMorgan made last year -- and it's not the only bank to cut back. In 2012, Bank of America, Citigroup, Morgan Stanley and Goldman Sachs also trimmed down.
Mr. Bove said some of the cuts come as the industry tries to automate more jobs in the financial sector, but others cuts are in response to banks reining in their foreclosure problem.
"You hire a whole bunch of people to do foreclosures, the foreclosures go down, and you don't need them anymore," Mr. Bove said.
During the fourth quarter, the industry reported $34.7 billion in net income, up $9.3 billion or 37 percent from the same quarter in the previous year, according to the FDIC's Quarterly Banking Profile, which was released Tuesday. It was the industry's best fourth quarter since 2006.
"The improving trend that began more than three years ago gained further ground in the fourth quarter," said FDIC chairman Martin J. Gruenberg. "Balances of troubled loans declined, earnings rose from a year ago, and more institutions of all sizes showed improved performance."
Sixty percent of banks saw their quarterly earnings increase year-over-year, while those reporting net losses fell to 14 percent, down from 20 percent in the fourth quarter of 2011.
The FDIC attributes the successful year to higher income and lower provisions for loan losses. Loan balances increased for the sixth time in the last seven quarters in the fourth quarter, rising by $118.2 billion.
Banks set aside $4.9 billion, or 25 percent, less for bad loans in the fourth quarter. That's the 13th consecutive quarter of decline and a signal that the industry's health is improving. There were $18.6 billion in net charge-offs, down $7 billion from the same period in the previous year.
The FDIC's problem list of at-risk banks continued to decline for the seventh consecutive quarter, falling to 651 banks from 694 in the previous quarter. The number of problem banks has fallen significantly since maxing out at 888 in the first quarter of 2011, during the financial crisis.
"The industry recovery over these past three years has been aided by the slow but steady growth in the economy over that period," Mr. Gruenberg.
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