Banks bracing for weak 2013
They talk about loans but keep cutting staff
Banks bracing for weak 2013
Banks are talking bravely about the economy's growth prospects in 2013, but analysts who sift their data for a living say the signs are weak and most lenders are still more worried about cutting costs than boosting lending that would finance company hiring and growth.
“We look deep into our customers' budgets. Most of them have a growth plan; all of them have a nice capital expenditure budget,” says Chuck Greenberg, who heads Bank of America's lending to “mid-market” companies, with sales of $50 million to $3 billion a year – manufacturers and chemical makers, warehouse and trucking operators, law firms and other professional services – in Pennsylvania, New Jersey and Delaware.
Still, Greenberg tells me new lending has slowed down in recent months – and he's expecting demand will stay weak this winter as businesses hoard cash instead of risking it on hiring workers and soliciting new clients.
Bank of America is trying to make more loans to offset weak securities-market profits, writes Anthony Polini, analst at Raymond James & Associates in New York. Similarly, Citigroup is expected to report higher worldwide lending, even as it prepares to close its suburban Philadelphia branch network and other marginal operations in a cost-cutting effort. Wells Fargo boss John Stumpf his been bragging his bank, the nation's biggest mortgage lender, will keep growing amid the general pessimism as borrowers refinance loans at near-record cheap rates.
But mostly, U.S. lenders are still focused on “lowering expenses and reducing funding costs,” according to a new report by David Hendler's bond analyst team at CreditSights Inc.
Banks, he writes, are in a “Hunger Games contest to survive the brutal” slow-growth economy. Mortgage and corporate-bond refinancing are no substitue for “healthier organic” growth, he adds. Citigroup's firing of “strategic” CEO Vikram Pandit and his replacement with operations specialist Michael Corbat earlier this month “demonstrate the 'waiting for the cycle to rebound' game is at an end” – so expect “more aggressive cost-cutting actions, with headcount reduction, compensation levels reduced,” branch sales or shutdowns and more emphasis on banking by smartphone and other cost savers.
“Net loan growth may remain muted on (U.S.) econmic uncertainty, driven by the fiscal cliff” and small growth, he added.
Some national lenders have set up specialized units to focus on what, for them, are new business lines, at other big banks' expense. Capital One Corp., which recently purchashed the former ING Direct Bank and HSBC credit card units in Wilmington, is plowing years of credit card profits into energy and healthcare loans targeting two of the few U.S. Growth industries of the moment, writes Sameer Gokhale, stock analyst at Janney Cpaital Markets in Philadelphia.
Analysts at Sandler O'Neill + Partners in New York last week warned investors of slow growth at a string of community banks in the Philadelphia area and neighboring markets. Highlights:
Beneficial Bank, the biggest bank still based in Philadelphia, continues to shrink its loan portoflio as business real esttate owners pay down old loans and don't borrow more, writes Sandler's Frank Schiraldi. Like many other banks, Beneficial is buying back its own shares to prop up the stock price, believing that creates better returns for investors than making a lot of new loans, these days.
Also in Philadelphia, Republic First has been hammered by “legacy credit issues” as bad loans slow its attempt to emulate investor Vernon Hil's former rapid growth at the former Commerce Bank, now part of TD Bank.
Bryn Mawr Bank Corp. posted a small rise in business lending last quarter, and told investors “the pipeline is strong” for new loans in suburban Philadelphia and Wilmington, where it took over operations of the former First Bank of Delaware.
Down the Shore, Cape Bancorp. Inc.'s Ocean City-area customers were spared the worst of Hurricane Sandy, but Schiraldi says “loan demand remains relatively muted.”
First Niagara, the Buffalo-based bank that absorbed the former Harleysville National formerly the biggest bank based in Montgomery County, reports business “loan prospects remain pretty good” – yet the bank is also bracing for more cost-cutting to prop up profit margins.
Also in Montgomery County, Fox Chase Bancorp reported it's funding more loans to buy apartment buildings, as single-home sales remain below mid-2000s levels.
“Loan growth has been quite modest” at National Penn Bank, which is based in Boyertown and has been adding offices in the Philadelphia and Allentown areas to chase new customers.
Money-losing Sun Bancorp of Vineland faces more losses from “a construction company and a hotel operator on the Jersey shore,” leaving total losses “a little higher than we previously had thought,” even before calculating Hurricane Sandy damage, writes Schiraldi's colleague Joseph Fenech.
The Bancorp Inc., the Delaware-based specialty lender and financial services company run by former Jefferson Bank head Betsy Zubrow Cohen, raised $44 million in a stock market offering last week and will use the money for federal Small Business Administration-backed loans, investor lines of credit and truck leasing, and other national programs, according to Schiraldi.