The Irish Independent reports that Aer Lingus yesterday revealed its worst six-month financial performance in its more than 70-year history, racking up a €93m loss in the first half of 2009 and warning of the need for a fundamental overhaul of its strategy and costs if it is to survive.
"The reality of where this business is needs to be brought home to staff, the government and to shareholders,"said chief financial officer Sean Coyle. "We need to take a long, hard look at ourselves and decide to do things quite differently if we're going to return to profit."
Aer Lingus, in which the government has a 25pc stake and Ryanair almost 30pc, made a €120m loss last year and is on target to lose roughly €130m this year, according to analysts.
Chairman Colm Barrington said that there are no signs of an improvement in the Irish economy or consumer sentiment in the near-term.
Total revenue for the six-month period fell 12.2pc year-on-year to €555m, with fare revenue having fallen 15.7pc to €451.6m despite Aer Lingus cutting ticket prices to lure flyers.
The airline said it is still progressing plans to initiate a sharp reduction in its cost base, but declined to say what those decisions would entail. However, it's almost certain that job cuts and salary reductions will be included in the measures.
That could provoke damaging industrial action at the carrier at a time when it is rapidly burning through its cash pile.
Trade union Siptu said it expects a new cost-cutting proposal will be put to unions in late September or early October. Christoph Mueller, the newly appointed chief executive at Aer Lingus, takes up his position next week.
Speculation
Speculation has mounted that pilots and cabin crew pay may be targeted in the next cost-cutting plan following a redundancy programme to drastically reduce the groundhandling workforce last year.
Union sources said they were being "softened" up for another round of cuts after Mr Coyle said that "legacy" style pay rates were no longer relevant for Aer Lingus.
"It is a pity that the company did not acknowledge the huge savings on groundhandling operations due to increased efficiencies and staff commitment," said Siptu national industrial secretary Gerry McCormack.
Any fresh redundancy round will not include generous pay-offs. The last such programme cost Aer Lingus €117m and delivered annualised savings of about €53m. Mr Coyle said the impending cost reductions would in no way entail such a skewed cost-return ratio.
Aer Lingus dropped its average fare by 17pc in the six-month period to the end of June and said that prices will fall further as it tries to fill its aircraft. Passenger fare revenue on its short-haul network was down 9.7pc in the first six months at €325m, while long-haul fare revenue tumbled nearly 28pc to €126.6m.
Shares in Aer Lingus were virtually unchanged at the close of business in Dublin yesterday at 50 cent.
The newspaper reports that an average of just eight premier class seats on each trans-Atlantic Aer Lingus flight are now filled with passengers, and only about four of five of them have probably paid the full fare, it was revealed yesterday.
Two or three of them are likely to have used air-mile points to upgrade their economy class seats for free.
With about 24 premier cabin seats on an aircraft, the startling figure underlines the depth of the problems facing Aer Lingus as it struggles to survive.
The high ticket price for a premier class seat, typically about €905 each way mid-week to New York, provides a fat margin for Aer Lingus, but it's a cost that few travellers, or their employers, are now willing to pay.
Aer Lingus planning director Stephen Kavanagh said the airline had considered abandoning its premier class service altogether, but believes it still presents an opportunity for the carrier.
The Irish Independent also reports that the credit squeeze tightened its grip on the euro area economy last month, but the mood of business and consumers about the outlook continues to improve.
However, the lending figures from the European Central Bank (ECB) will increase policymakers' worries about the strength of any recovery. They show that private sector credit in July across the eurozone was just 0.6pc higher than a year ago, compared with growth of 1.5pc to June.
There has been no increase in lending to households over the 12 months, and mortgage lending was 0.2pc lower than July last year. The annual growth rate of loans to corporations decreased to 1.6pc, from 2.9pc in June. Figures for Ireland will be published on Monday.
The figures show that businesses repaid €26bn in July, although this was slightly less than the amount they paid back in June. These are total figures and may include companies which want credit but cannot get it, combined with others which are in a position to reduce their debts.
Assistance
ECB governors have made clear that they are in no hurry to withdraw assistance from the economy. This includes interest rates at 0.5pc and €440bn lent to the financial system in June.
The ECB Governing Council meets next Thursday and is expected to repeat this message, along with its willingness to continue with monetary support. Last week, President Jean Claude Trichet said recent returns to growth in France and Germany did not mean there was not a rocky road ahead.
But the signs of recovery are helping the mood. German consumer confidence rose to a 15-month high as falling prices boosted households' income expectations, although the survey came before preliminary figures for August showing unexpectedly high price rises.
"Economic pessimism is continuing to wane," the GfK thinktank said."Inflation is disappearing, meaning people have more money in their pocket. This leads to rising income expectations."
Lower inflation also helped consumer confidence in Italy rise to its highest in 30 months in August. "The overall sense is that the economy is moving toward a recovery," Paolo Mameli, an economist at Intesa Sanpaolo in Milan told Bloomberg News.
A survey of purchasing managers by Bloomberg found that EU retail sales fell for a 15th month in August.
The Irish Times reports that the Government is preparing to provide key data next month on the ultimate extent of the State’s likely shareholding in the institutions participating in the National Asset Management Agency (Nama).
Sources say Minister for Finance Brian Lenihan will, at the start of the Dáil debate on Nama next month, set out the likely requirement for new capital in each participating bank and building society when €90 billion in loans move to the new agency.
Although the plans are still tentative and may be subject to change, the Government would do this by telling “a story” in respect of the impact of the Nama process on all of the institutions. This may well include data as to the likely level of loan impairments in each institution and the resulting impact on their core capital.
It remains to be seen if the Government would specifically set out the likely level of new capital required in each case, but sources say the level of information set out will be such that the calculations will be made within the market.
Sources say varying levels of State ownership of key institutions may be implied by the data. This could include the State taking a majority shareholding in certain cases, they say. However, they emphasise that State shareholdings would be conditional on the institutions failing to raise new capital from private sources.
A key strand of the Nama plan is that the Government hopes private investors will come forward.
If they do not, the Government has indicated that any new State capital going into Allied Irish Banks (AIB) and Bank of Ireland would go in as pure equity.
Certain sources believe an indication that the State is prepared as a result of the Nama process to take a big or a majority shareholding in some of the main institutions might ease passage of the legislation through the Oireachtas.
Canadian Imperial Bank of Commerce (CIBC), which is known to have made an informal investment proposal to AIB, indicated yesterday that is considering acquisitions outside Canada that can be funded from excess capital generated by its main businesses.
Its chief executive, Gerald McCaughey, said there were opportunities in “many jurisdictions that we have and are looking at”.
While not specifying an opportunity, he said CIBC was more interested in buying assets instead of institutions in the US or making investments with partners.
AIB said this month it had received an approach from an unidentified third party seeking to take a minority stake, but said the talks were conditional on the outcome of the Nama process.
The Irish Times also reports that the Commission on Taxation report which recommends the introduction of a property tax, a carbon tax and water charges was presented to Minister for Finance Brian Lenihan yesterday.
One of the 17 members of the commission, Brendan Hayes, the vice president of Siptu, declined to sign the final report. It is understood he felt unable to accept one of the key terms of reference of the commission – that the overall tax take should not be increased.
Mr Lenihan intends to brief his cabinet colleagues about the contents of the report next Tuesday and it is expected to be published a week or so after that.
The report, which comes to over 600 pages, recommends that the Government should put transition arrangements in place at an early date to ensure that the its recommendations do not lead to distortions as people await Government decisions on the major recommendations.
It is understood the commission feared its recommendation that stamp duty be reduced significantly with the introduction of a property tax might have a distorting impact on the property market.
This could be avoided by a Government commitment that any reductions in stamp duty would apply retrospectively.
The commission, set up in February of last year and chaired by the chairman of the Revenue Commissioners, was established to examine all aspects of the taxation system. Its brief was to keep the overall tax burden low, including retaining the 12.5 per cent corporation tax. It was also asked to propose measures to further lower carbon emissions on a revenue-neutral basis.
Earlier this year, following contact with Mr Lenihan, the commission agreed to complete its work earlier than its deadline, which was originally set for September 20th.
One of the key recommendations is understood to be the introduction of a property tax which would be in the region of €600 to €800 a year on the average house. The total amount of revenue to be raised from property tax would be in the region of €1 billion a year.
While property tax has been a thorny political issue since the abolition of domestic rates in 1977, the Government is anxious to move away from volatile property-based taxes like stamp duty to a more sustainable tax.
Water charges are also proposed in the report, above a certain level of consumption, although the absence of a system of water meters poses a difficulty. Irish people use considerably more water than other European countries and a water charge has long been recommended as a means of reducing waste.
A carbon levy, which would involve increases in the price of petrol, coal and peat briquettes, will also feature in the report.
However, it is also expected to recommend that new taxes should be offset by reductions in the current income tax take from people on middle and low incomes.
However, the report recommends that any new taxes or charges should be balanced out by a reduction in income levies.
Among the other 250 recommendations in the report are the taxation of child benefit with a tax credit given to lower-income families. The scrapping of the artists’ exemption, the phasing out of various tax reliefs, a new SSIA type pension for the lower paid, the reduction of tax relief on pension contributions and a €200,000 cap on retirement tax-free lump sums also form part of the report.
The Irish Examiner reports that Eircom refused to give any update, yesterday, on where the likely takeover by Singapore Technologies Telemedia (STT) currently stands, but did say that it remains on track to lower its annual operating costs by €130 million within two years.
Completion of the anticipated takeover of Eircom Holdings, the Australian-based 57% owner of Eircom, by STT was expected last week and then again, when that didn’t materialise, this week.
An Eircom spokesperson said yesterday, the matter remains "a shareholder issue".
Instead, the former State-owned telco was more concerned with financial matters and its fourth-quarter and full-year figures for the three and 12 months to the end of June
New chief executive, Paul Donovan, called the performance — featuring a 3% decline in full-year revenue to €1.99 billion and a 1% fall in adjusted EBITDA to €692 million — "a robust set of results against the background of a challenging operating environment".
"We’ve made good progress in reducing costs to offset steep revenue declines. In the fourth quarter, the group’s operating costs — before exceptional items and non-cash pension credit — were 9% better than last year," Mr Donovan added.
Adjusted EBITDA was down by 2% year-on-year for the fourth quarter at €173m, with revenue down by 6% at €479m.
Meteor, the group’s mobile telephony network provider, was once again the stand-out performer; upping its full year EBITDA by 11% to €124m and full-year revenue by 3% to €496m.
In the fourth quarter, alone, Meteor’s revenue actually fell year-on-year by 2%, due to a dip in ARPU (average revenue per user) but its EBITDA (earnings before interest, tax, depreciation and amortisation) grew by 13% to €35m.
Meteor’s customer numbers grew by 38,000 in the year, to top the one million mark and Eircom’s broadband customer numbersalso grew by 72,000 to 665,000.
Said Mr Donovan: "The economic environment is challenging, with the continuing slowdown in activity impacting both volumes and revenues. Customer growth and retention remain key objectives for the business, which we expect to achieve through increased value and service."
Eircom invested €335m in its business during the year and said that it will continue to invest in its broadband and 3G activities, with cash generation remaining strong.
"Our cash balance stood at €333m at the end of June. We’ve made good progress on de-leveraging, reducing our net debt by €182m during the year and by €387m in the past two years," added Mr Donovan.
The Financial Times reports that Eurozone bank lending to business was squeezed further in July despite signs of an economic recovery across the region and European Central Bank efforts to boost credit markets.
Rather than borrowing, businesses overall repaid €26bn in July – only slightly less than the amount they paid back in June – according to ECB statistics that are likely to strengthen the central bank’s view that the rebound remains fragile. Loans to households showed no growth over the past year.
Official UK figures showed businesses slashed investment spending by the most since the 1960s in the year to the end of the second quarter, raising fears over the British economy.
Investments ranging from new building work to vehicles and software purchases slumped by 18.4 per cent, the sharpest year-on-year decline since data began 43 years ago. A slew of company results on Thursday pointed to further cuts ahead.
Economists believe rapidly shrinking investment spending amid a shortage of credit could undermine the recovery this year and next and endanger the UK’s growth prospects.
“The further sharp decline in business investment signals serious threats to Britain’s long-term recovery,” said David Kern, chief economist at the British Chamber of Commerce.“Unless this trend can be reversed, the . . . productive capacity of the economy will be damaged, and the country will lack the necessary capital stock to sustain a recovery.”
The eurozone economy has shown signs of growth recently, with France and Germany out of recession.
Germany’s GfK research institute said it expected its “consumer climate” indicator for the eurozone’s largest economy to reach its highest for 15 months in September.
German shoppers’ mood has been helped by relatively stable jobs levels and falling prices – although German inflation data revealed that the country’s brush with negative inflation had ended earlier than expected.
But the risk of a weakened banking sector acting as a constraint on growth remains a serious concern .
Since the economic crisis intensified late last year, the ECB has pumped extra liquidity into the banking system – including €442bn in one-year loans in late June. Jean-Claude Trichet, ECB president, has publicly appealed to banks to provide the credit needed to oil the wheels of recovery and is likely to have lobbied even harder behind the scenes. The difficulty the ECB has faced is deciding whether the slowdown in lending to the private sector has been the result of falling demand or of supply constraints imposed by banks.
Bank lending to eurozone businesses has been negative since February, but the amounts being repaid have picked up recently. German industry groups have warned of a looming credit crunch.
Julian Callow, European economist at Barclays Capital, said: “It tends to be improving profits that will drive the first upswing in investment, and then only after a lag will companies feel confident enough to go out and borrow to fund further expansion in investment.”
The FT also reports that bankers, industrialists and London’s mayor have fiercely rejected Lord Turner’s argument that Britain’s “swollen” banking industry was destabilising the economy and needed to be cut down to size.
The backlash came a day after the chairman of the Financial Services Authority said the City watchdog should be “very, very wary of seeing the competitiveness of London as a major aim”.
He also floated the idea of higher capital reserve requirements and a global Tobin tax on financial transactions to choke off some of the banks’ “socially useless” activity.
Lord Turner’s critics said he had overstepped his remit as a regulator and risked damaging London’s standing as Europe’s leading financial centre.
Stuart Fraser, chairman of policy at the City of London Corporation, said Lord Turner was playing into the hands of rival financial capitals, such as Frankfurt or Paris. “Other centres would dearly love to have business from London. If we want to shoot ourselves in the foot, they would be delighted to take the business,” he said.
Boris Johnson, the London mayor, said anybody who did not believe the FSA’s responsibilities included protecting the international competitiveness of the City was “crackers”.
“Nobody in their right mind would want to do something that targeted London specifically. The City of London generates fantastic revenues for the government,” Mr Johnson said.
John Cridland, deputy director-general of the CBI, said: “The government and regulators should be very wary of undermining the competitiveness of the UK’s financial services industry.”
Lord Turner’s comments, made in a discursive interview in Prospect magazine, drew a stony silence from the Treasury yesterday, other than a statement saying that it was Alistair Darling, not the FSA chairman, who set tax policy. George Osborne, shadow chancellor, declined to enter the debate.
Vince Cable, Liberal Democrat treasury spokesman, said Lord Turner was right to warn that the City might need to shrink and that “defending London’s competitiveness” was being used as an excuse to defend “business as usual”.
“If you are engaged in behaviour that is dangerous to the wider British economy, it is right some sectors may have to contract,”he said.
But Lord Turner’s backers were drowned out by the City reaction. The British Bankers Association was among the most trenchant in its criticism. “If we introduce the wrong kind of regulation or the wrong kind of taxes we could so easily lose that position by driving business abroad ... On so many occasions in the past the country has lost chunks of industry through making the wrong decisions. Let’s not do that again.”
The Investment Management Association and the Association of British Insurers were critical of the likely impact on investors. “It is just illogical to want to shrink one of your most important industries,” said one London banker.“If you want to turn London into a Marxist society, then great.”
US bankers also opposed the idea of a global transaction tax. “We vigorously oppose a tax on the industry,” said Scott Talbott, head of government affairs at the Financial Services Roundtable, which represents the top 97 US institutions.
The New York Times reports that R. Allen Stanford’s relationship with the chief regulator of his Antigua bank was closer than most.
At a meeting in 2003, they became blood brothers, cutting their wrists and mixing their blood in a “brotherhood ceremony” that Mr. Stanford’s chief financial officer said promoted an elaborate scheme to hide a multibillion-dollar fraud from American and other regulators.
The assertion that the two took a “blood oath” was laid out in a plea agreement signed by the officer, James M. Davis, and filed Thursday. After the pact, Leroy King, Antigua’s chief banking supervisor, called Mr. Stanford “Big Brother.” He received Super Bowl tickets, valued at thousands of dollars, for himself and his girlfriend. And he accepted regular bribe payments from a secret Swiss bank account that Mr. Davis said he was told to handle by Mr. Stanford.
The unusual twist to the case, in which Mr. Stanford is accused of operating a multibillion-dollar Ponzi scheme, was disclosed by Mr. Davis as he pleaded guilty on Thursday to fraud and conspiracy in Federal District Court in Houston. Mr. Davis, who oversaw the movement of vast sums of money at Stanford International Bank, also said in a plea agreement that Mr. Stanford ordered him to report false revenue and false investment portfolio balances to banking regulators as far back as 1988, when Mr. Stanford ran an offshore bank on the Caribbean island of Montserrat.
“I did wrong. I’m sorry. I apologize. And I take responsibility for my actions,” Mr. Davis said after the hearing.
Mr. Stanford was also supposed to appear in court on Thursday, but he was hospitalized in the morning after his pulse rate soared, his lawyer said.
While he has repeatedly denied accusations that he ran a Ponzi scheme involving certificates of deposit issued by Stanford International Bank, he has also insisted that if anything illegal did happen, it must have been Mr. Davis’s fault.
Mr. Davis, who had been a friend of Mr. Stanford’s since they were roommates at Baylor University in Waco, Tex., started his own church in Mississippi and led prayers before bank business meetings. His lawyer, David Finn, said Mr. Davis was now working on a family farm in Michigan doing manual labor for $10 an hour as an expression of penance. He now faces up to 30 years in prison.
“He had a very heavy heart,” Mr. Finn said.“He was very contrite, and not all of my clients are.”
The plea agreement and a court presentation on Thursday by prosecutors repeated many facts that were outlined in June in an indictment of Mr. Stanford, several Stanford aides and Mr. King. Mr. Stanford and others are accused of defrauding 30,000 investors of $7 billion, filing false reports to regulators and investors, diverting more than $1.6 billion into undisclosed personal loans to Mr. Stanford, and conspiring to obstruct an investigation by the Securities and Exchange Commission.
But the plea agreement offered an assortment of new details, particularly about the relationship between Mr. Stanford and Mr. King, who ran Antigua’s Financial Services Regulatory Commission for much of the last decade. He has been arrested in Antigua and is awaiting extradition to the United States.
Shortly after their 2003 blood-brother ceremony, which also included a second, unnamed Antiguan regulator, Mr. Stanford complained that two Antiguan regulators who worked for Mr. King were “becoming aggressive and suspicious in their examination” of the Stanford bank on the island, the plea agreement said. Both employees “soon thereafter were reassigned or replaced,” Mr. Davis said in the plea agreement.
To show appreciation for Mr. King’s services, Mr. Stanford paid $8,000 for tickets to the 2004 Super Bowl game in Houston so the regulator could take his girlfriend to the event. The next year, in June, Mr. King showed Mr. Stanford a confidential letter he had received from the S.E.C. seeking information about the Stanford bank’s certificates of deposit investment portfolio, stating that the agency had evidence to suggest the bank was engaged in a “possible Ponzi scheme.” Mr. Stanford and an unnamed aide then drafted “a false and misleading response” to the S.E.C., according to the plea agreement.
In September 2006, Mr. King tipped Mr. Stanford off to another letter from the S.E.C. Mr. Stanford, Mr. Davis and others proposed various responses designed to mislead the American regulators, which Mr. King was expected to transmit back to the S.E.C.
Mr. King also helped mislead regulators of the Eastern Caribbean Central Bank when they began raising questions about Mr. Stanford’s bank, the plea agreement said. He faxed a proposed response to the Caribbean regulators to an unnamed lawyer working for Mr. Stanford. In it, Mr. King joked in a handwritten note: “Please do not bill me (laugh), Thanks a million, Lee.” The note was taken as an oblique reference to bribes already paid, according to the agreement.
Mr. King, who holds American and Antiguan passports, is reviewing legal documents and has not yet publicly responded to the charges against him, according to Attorney General Justin Simon of Antigua and Barbuda. In an interview in February, just after Mr. Stanford’s offices in Houston were raided by federal authorities, Mr. King said,“I am absolutely sure that my banking system is clean.”
Mr. Simon said in an interview that he had become aware of the blood-brotherhood ceremony from his own sources. “It is believable,” he said. “As far as how many people are involved, we are still investigating.”
By the middle of 2008, the agreement asserts, Mr. Stanford, Mr. Davis and others were scrambling “desperately” to hide the details of their fraud by inflating the value of their assets on the books with “bogus real estate.” The conspirators “designed a real estate transaction wherein they would falsely inflate and convert an approximate $65 million real estate transaction in Antigua into a purported $3.2 billion dollar asset,” according to the agreement. But by January the S.E.C. was moving in fast, and when Mr. Davis met with Mr. King, “King appeared very stressed” and wondered if they could still hide their secrets. Mr. Davis tried to reassure him.
In an interview in April, Mr. Stanford said he gave Mr. Davis broad responsibilities to oversee investments. “If bad things were happening, he never brought them to my attention,” Mr. Stanford said.“He did his job and I stayed out of his hair.”
Mr. Finn acknowledged after Thursday’s plea hearing that Mr. Stanford would attempt to discredit his client during a future trial. “The only way he walks is if he can convince a jury that my client is the mastermind,” he said. “Allen Stanford uses people. Did my client allow himself to be used? Absolutely.”
Mr. Finn said it would be strange for his client to have run a fraudulent scheme to pay for Mr. Stanford’s lavish lifestyle when he was getting paid relatively little for his efforts. He said Mr. Davis had earned between $5 million and $6 million after taxes over the last decade, and was now virtually penniless.
Mr. Stanford’s lawyer, Dick DeGuerin, has asked for court permission to quit the case because his client can not assure that he will be paid. Mr. Stanford was supposed to appear in court for a hearing on whether he could retain a new legal team. Mr. Stanford has asked to be represented by two other lawyers, but they also have said they need assurances that they will be paid.
Mr. Stanford’s assets and his companies’ assets have been frozen.
The NYT also reports that even though financial stocks have rallied nearly 70 percent since the end of March, the Federal Deposit Insurance Corporation issued another grim quarterly report Thursday on the health of the nation’s banks.
The agency reported that the banking industry lost $3.7 billion in the second quarter amid a surge in bad loans made to home builders, commercial real estate developers and small and midsize businesses. Its deposit insurance fund dropped 20 percent, to $10.4 billion, its lowest level in nearly 16 years. And the number of “problem banks” increased to 416, from 305 in the first quarter, and is expected to remain high.
Indeed, federal officials warned that while the economy and financial markets were showing signs of improvement, the banking sector was unlikely to rebound soon.
“These credit problems will at least outlast the recession by a couple of quarters,” said Sheila C. Bair, the F.D.I.C. chairwoman. “Cleaning up balance sheets is a painful process that does take time, but it is absolutely necessary to the industry’s sustained profitability.”
The dismal report shows how the industry’s problems have spread. A handful of the biggest banks were among the first to suffer big losses nearly two years ago from complex mortgage assets and other securities, but have posted strong trading profits in the last two quarters.
Still, most of the nation’s 8,195 banks primarily make their money from lending to consumers and businesses. They are now facing increased pressure from soaring loan losses and higher deposit insurance costs as the F.D.I.C. seeks to shore up the industry fund.
So far, 81 banks have failed this year, including 45 in the second quarter. That, in turn, has put enormous stress on the government’s deposit insurance fund, which is supported by fees charged to the banks regulated by the F.D.I.C. Its second-quarter reserve of $10.4 billion compares with $45.2 billion a year earlier.
Most of the decline comes from money that the agency has set aside to cover the cost of bank failures, and Ms. Bair said the fund had ample resources to cover all insured depositors.
But the levels are so low that F.D.I.C. officials said Thursday that they would consider imposing a special assessment on the banks, on top of elevated insurance fees, toward the end of the third quarter. Through similar actions, it added about $9.1 billion. It also will begin to recover some money by selling the assets of banks that it seized.
Ms. Bair said she did not anticipate having to immediately tap an emergency credit line run by the Treasury Department, although she did not rule it out. “I never say never,” she said. The F.D.I.C. quarterly report came after a similar release by the Office of Thrift Supervision on Wednesday that showed savings and loan associations eked out a $4 million profit, the first time the sector posted positive results since the fall of 2007. Still, the number of “problem thrifts” rose to 40, up from 17 a year earlier.
The savings and loan industry “is not out of the woods yet,” said John E. Bowman, the acting director of the office.
Federal banking regulators are bracing for hundreds of small and medium-size banks to collapse in the coming months. Banks are burdened with billions of dollars of bad loans made over the last few years and are continuing to set aside more money to cover losses. In fact, credit loss rates reached a record high in the second quarter.
Over all, banks charged off $48.9 billion, or 2.55 percent of assets, nearly twice the levels the industry reported last year.
