January 12th, 2010
02:20 PM ET

Financial Dispatch: Federal Reserve posts record profit

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Andrew Torgan
CNN Financial News Producer

The Federal Reserve’s efforts to stabilize the financial system paid off handsomely last year as the central bank raked in a record-setting profit of more than $52 billion.

That reflects the highest earnings in the Fed’s nearly 100-year history.

Let’s put that into perspective: In 2008, oil giant ExxonMobil reported the largest annual profit in U.S. history, making $45.22 billion on the back of record-high oil prices.

And unlike most government agencies, the Fed funds itself from its own operations, and its member banks are required to return all profits to the U.S. Treasury after certain deductions. That means Ben Bernanke and Co. returned about $46 billion to taxpayers. Not too shabby an accomplishment for Time’s “Person of the Year 2009.”

The Fed's 2009 profit marks a 47% increase over 2008. It comes as the central bank took in interest payments on an expanding portfolio of securities issued by the Treasury and by the government-sponsored mortgage agencies Fannie Mae and Freddie Mac.

In the wake of the financial crisis that helped the Fed make a pretty penny, the nation's top banking regulator is considering a new rule which could require lenders to pony up if they rely on potentially risky pay practices.

In a proposal made today, the Federal Deposit Insurance Corporation said it wants employee compensation to be another factor in how it determines payments banks are required to make in order to support the agency's deposit insurance fund.

In essence, banks that dangle lucrative incentives in front of employees for making questionable loans would have to pay more.

FDIC Chairman Sheila Bair says the proposal would not seek to limit the pay of bank employees or executives. Instead, the agency wants to push banks to tie pay with the company's long-term performance.

The White House is also considering a tax on financial institutions to ensure that taxpayers who bailed out banks get paid back, a senior administration official said Monday.

The law that created the $700 billion Troubled Asset Relief Program empowered the president to ask Congress to recoup money if bailouts were not paid back in full.

TARP dictates that the Office of Management and Budget consider such action five years after TARP went into effect in October 2008 to prevent the federal bailout from adding to the nation’s swelling deficit.

While the financial system may be back on firmer footing, the job market is not out of the woods yet.

The Labor Dept. said today that the number of job openings fell in November to 2.4 million - down slightly from 2.5 million in October and 27% below the level a year ago.

With 15.3 million people out of work and employers hesitant to hire, job seekers still outnumber openings by more than six to one, the greatest differential since the Labor Dept. began tracking job openings in 2000.

Turning to Wall Street, the focus this week is on Corporate America and earnings for the final three months of 2009.

The expectations are higher than a year ago, mostly because things were so dismal in 2008. But if those expectations are not met, the disappointments could be ugly.

That's what happened at Alcoa. The aluminum giant reported a net loss of nearly $300 million in the fourth quarter after the closing bell Monday. While this is a fraction of the red ink the company saw in the year ago period, it still missed estimates - and comes after Alcoa had a massive restructuring that cost thousands of jobs.

A warning from Chevron late Monday that sharply lower fourth-quarter refining earnings would drag down the oil company’s fourth-quarter results isn’t helping matters either.

Finally, Continental Airlines and Delta Air Lines are raising their checked-luggage fees.

Continental and Delta passengers paying online for checked bags will be charged $23 for the first bag and $32 for the second. Delta's online fees are rising by $8 for the first checked bag and $7 for the second. Continental's fees are rising by $5 for each bag.

Travelers checking in bags at the airport will shell out even more: $25 for the first bag, $35 for the second on both airlines.

Follow the money… on Twitter: @AndrewTorganCNN

Filed under: Andrew Torgan • Economy • Finance • U.S. Federal Reserve • Unemployment • Wall St.
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