U.S. banks earned record profits of $5.9 billion between July and September, the Federal Deposit Insurance Corp. says, with much of the profits coming from large fees paid in leveraged buyouts of big corporations.
FDIC Chairman William Seidman said he was pleased with the numbers, but in the same breath he cautioned banks against concentrating too much of their business in lending for LBOs and real estate in some markets in the East.The profits of the nation's 13,239 banks surpassed the previous record high of $5.8 billion in the third quarter of 1987, said the FDIC, which insures bank depositors for up to $100,000.
During the first nine months of this year, banks had profits of $18.7 billion, surpassing the previous full-year record of $18.1 billion in profits in 1985.
"We can say without much question that this year will be an all-time high for bank profits," Seidman said at a news conference.
But there is a danger that if the economy falters, highly leveraged corporate borrowers will be unable to meet payments, Seidman said in a separate television interview.
Banks make loans and receive fees for arranging LBOs, acquisitions made with debt rather than equity.
LBO loans "are risky loans because there's very little room for error. If we have a dip (in the economy,) they won't have the money to pay off the loans," Seidman said on NBC's "Today" show.
The Comptroller of the Currency, another federal bank regulator, is expected to issue bank examiners guidelines soon to help them ensure that banks do not undertake too much risk in lending for leveraged buyouts.