The FDIC released its quarterly report, and it paints a bleak picture for the banking industry. In fact, you might want to dump everything financial after reading it, but I think we can still find some value in America's banks.
First, the key numbers for Q2:
- Banks and thrifts set aside $11.4 billion for bad loans, a 75% increase over last year.
- Noncurrent loans increased 10%, with residential mortgage loans accounting for half of the increase.
- Charge-offs of residential mortgage loans increased a whopping 144%.
It sounds bad, but none of this should be a surprise. I predicted higher loan loss provisions back in April (OK, smart people made the prediction, and I agreed with them). Anyone who's tuned in to CNBC lately is well aware of the subprime problems and "credit crunch." But I suspect the year-over-year changes are exacerbated a bit by lower charge-offs (uncollectible loans) in 2006 after the bankruptcy reform.
Despite the problems, the Big Banks still look attractive to me as long-term holdings. I'm not alone. Berkshire Hathaway -- the investment vehicle of the legendary Warren Buffett -- actually increased its holdings in Wells Fargo
A Wall Street Journal article also suggests Wachovia
Furthermore, the strongest banks can be opportunistic in this maelstrom, as we saw with Bank of America's investment in beleaguered Countrywide
In short, don't panic just yet. Value hounds with long investment horizons should be sniffing around the nation's strongest financial institutions.
Learn more from these Foolish takes:
Bank of America and US Bancorp are Motley Fool Income Investor recommendations. Berkshire Hathaway is a selection of bothMotley Fool Stock Advisor andMotley Fool Inside Value. Free, 30-day trials are available on request.
Joseph Khattab does not own shares of the companies mentioned.