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Analysts are skeptical lenders can cut overhead fast enough to keep up with a projected collapse in mortgage volume. Some banks are intent on taking a bigger piece of the pie.
April 3 -
Industry observers are hopeful that CEOs will use quarterly conference calls to outline plans to aggressively unload bad assets in coming months.
April 2 -
As more community banks pursue C&I lending, they must focus more on monitoring industry and borrower trends.
February 26
Bankers on the rubber-chicken circuit sought to lower expectations for lending in the first quarter, and preliminary data bears them out.
Commercial loan growth at domestically chartered banks slipped after a blowout fourth quarter, and total lending contracted at a 3.7% annual rate, according to
“I’m not seeing an amazing thawing yet in this economy,” U.S. Bancorp (USB) Chief Executive Richard Davis told investors in March. He said that amounts business borrowers had drawn were stuck at a record low of 25% of lines of credit. Similarly, PNC Financial (PNC) President William Demchak said line-utilization rates for the “middle market, industrial America, really haven’t changed for three years.”
The decrease in loans in the first quarter reflected seasonal factors like the downdraft in credit card borrowing that typically follows the holiday season. Seasonally adjusted data from the Fed shows that total loans increased at a 2.4% annual rate, 2.3 percentage points less than in the fourth quarter.
After seasonal adjustments, growth in commercial borrowing fell 3.6 percentage points to an annual rate of 11.4% in the first quarter. The drop could reflect borrowing that might have happened in the first quarter but was expedited in December as companies sought to finance dividends before a tax increase that took effect at yearend.
Overall, commercial borrowing remains the engine of loan portfolio growth, and warnings about slackening discipline in pricing and terms offered by competitors, combined with individual banks’ reassurances they are keeping their heads, have become a persistent theme.
U.S. Bancorp’s Davis said that some of the competition is coming from banks that had been sidelined during the crisis but have since healed. “It’s like everybody can come out and play, and there are more people in the marketplace and they’re not acting entirely rational,” he said. Everyone thinks “there’s a fighting chance to make it to the other side.”
PNC’s Demchak said small banks that have shifted away from commercial real estate have “attacked small business and commercial and crushed spreads in that space.”
BB&T (BBT) CEO Kelly King said some banks are taking large positions in syndications that would violate his company’s diversification objectives. “We could do that and grow loans twice as fast,” he said, but while “a $200 million loan looks really good going on, it doesn’t look very good going off.”
Davis said banks might as well dispose of presenting numbers on credit quality for the time being since increases in volume will conceal risks for a while.
“When someone is growing really fast, you won’t notice that slide until five years from now.”
