US Commercial Banks

On Monday, 10 US banks announced two big settlements worth a total of $18.5 billion, clearing up claims relating to the mortgage crisis. Bank of America agreed to pay $10 billion to Fannie Mae to settle claims that the bank (actually Countrywide) sold Fannie Mae bad loans for 10 years through 2008. In another unrelated settlement, several financial institutions agreed to settle claims of foreclosure abuses for $8.5 billion. The banks got off easy, and the bankers can now move on.

The S&P 500 Bank Composite Index rose 21.2% last year, outpacing the 13.4% gain in the S&P 500. Ultra-easy monetary policy and declining unemployment are boosting bank profits by reducing charge-offs and provisions for bad loans. Loans are rising, led by business demand for funds to finance rising inventories.

Meanwhile, US commercial bank deposits rose by a record $878 billion last year to $9.3 trillion, the highest ever. Banks have deleveraged their balance sheets significantly since the financial crisis. Their borrowings are down sharply from an all-time peak of $2.6 trillion during the week of October 22, 2008 to $1.5 trillion at the end of last year. As a result, their borrowings as a percentage of their total liabilities plunged from 24.4% to 13.1% over this period.

Today's Morning Briefing: Another Bank Bailout. (1) Nice to have friends in high places. (2) Lowering the cover charge. (3) Another good year for Financials. (4) Foreclosure Gate is settled. (5) US banks have deleveraged significantly and are lending more. (6) European banks have been performance champs. (7) New loans are still MIA in Europe and Japan. (8) Regulators prefer more lending to more liquidity. (More for subscribers.)