Banks Set to Post Fourth Quarter Jump in C&I Loans

Signaling that the growth outlook is improving, banks appear poised to notch significant gains in commercial and industrial loan portfolios in the fourth quarter.

According to preliminary data from the Federal Reserve, seasonally adjusted C&I loans at domestically chartered commercial banks totaled about $991 billion at Dec. 29. That represents a 4.3% annual rate of growth during the period — the first substantial increase since the third quarter of 2008 (see charts).

The expansion in C&I loans partially offset declines in other categories, including commercial mortgages, bringing the contraction in total loans to a 1.4% annual rate. That would be the slowest since they started shrinking about two years ago, excluding a spike in the first quarter of 2010, when the industry added more than $350 billion of assets to balance sheets as a part of the consolidation of securitization vehicles under new accounting rules.

The data indicates that overall assets fell at a 3.7% annual rate in the fourth quarter, reversing an uptick in the third quarter as large banks trimmed securities holdings. Small banks, meanwhile, dramatically boosted portfolios of federally guaranteed mortgage-backed securities, and registered only a 0.8% annual rate of increase in C&I lending.

To be sure, C&I portfolios fell at an annual rate of up to almost 25% during the recession and its aftermath, and remain almost $300 billion below peak levels. Bankers have described modest expectations for a rebound.

"I wouldn't expect you'd see loan growth screaming ahead, largely due to the fact that we are all careful on the risk right now, and the economy is just not there," Brian Moynihan, Bank of America Corp.'s chief executive, said during a presentation in December. "Businesses have cash and are only borrowing when they need to borrow."

U.S. Bancorp has projected that its loan growth would accelerate from the third quarter, but, in a December presentation, CEO Richard Davis painted a familiar picture, with larger, healthy businesses enjoying the greatest access to credit.

Use of existing lines fell again in November, Davis said, and he reckoned that U.S. Bancorp's gains were largely coming from new customers it was picking up from competitors.

"We might compete on price because we can, but we won't compete on underwriting," he said.

Wells Fargo & Co. CEO John Stumpf said in December that his company was hiring bankers and "running hard and bringing in new customers … just to keep the balances pretty flat."

But he still raised the possibility of a sudden turnaround, saying that "if companies do start to borrow, and use their lines, which our utilization rates are the lowest I've seen in my 35 years in the industry, you're going to see a big pop there."

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