Key Trends: Deleveraging & Capital Preservation–Buckle Down for Next Storm

It should come as no surprise that credit quality measures remained a key weight on earnings, or the lack of earnings, during the most recent quarter, as depicted in data released by the FDIC.  The initial aggregated earnings for the second quarter stood at a loss of $3.7B compared with a $4.7B profit a year earlier.  Key trends,  in our view, remain deleveraging and capital preservation.

The industry boosted its provision by nearly 33% to $67B, over the last 12 months.  The net charge-off ratio was 2.55% at the end of the second quarter with net charge-offs at $49B, up from 1.94% in the first quarter 2009, 1.32% in the second quarter 2008 and remember this–the net charge-off ratio stood at 0.49% in the second quarter 2007!  The pipeline for potential losses is unfortunately, quite strong as delinquent loans rose for the 13th consecutive quarter as of the second quarter 2009.  …