Regional Banks Say Loan Growth Falls Short Of Their Hopes
April 19 2011 - 02:20PM
Dow Jones News
Earnings at several large regional banks improved at a healthy
clip during the first quarter, but the lackluster economy
frustrated some bankers who said they were ready to use more of
their cash to make new loans.
U.S. Bancorp (USB), one of the nation's largest regional banks,
reported a 55% jump in profit from a year earlier, to $1 billion,
while earnings at Comerica Inc. (CMA), a large commercial lender in
the South and the Midwest, rose 98%, to $103 million.
Both banks have grown since the financial crisis abated, but
largely through acquisitions and luring customers from other banks,
rather than making more loans to their existing customers. Both
said companies continue to park cash in bank deposits rather than
making business investments, dampening the need for loans.
So while loan books grew some, lackluster demand for loans
continues to reflect an uncertain economy and clouds the banking
industry's revenue outlook.
"We have seen the economy slow a bit in the second half of the
first quarter, things are actually not as positive as we thought
they would be," U.S. Bancorp Chairman and Chief Executive Richard
Davis said during a conference call with investors. "We'll know in
a couple weeks whether or not we're off to a decent 2011."
Losses from bad loans, meanwhile, continue to abate, and bank
earnings benefit from setting aside less capital for future
delinquencies.
Regions Financial Corp. (RF), a big lender in the Southwest that
is struggling to recover from the real-estate meltdown, reported a
$69 million profit, compared with a $196 million loss a year
earlier.
And Zions Bancorp (ZION) of Salt Lake City said late Monday its
results swung to earnings of $52.8 million from a $60.5 million
loss, its first quarterly profit in two and a half years.
Clearly the demand for new loans is nowhere near the capacity
banks have to lend. Bankers blamed, in part, the natural disaster
in Japan, which disrupted the supply chain of manufacturers
worldwide, for the lackluster demand.
Further, continued unrest in North Africa and the Middle East,
"and increasing food and energy prices here in the U.S. appear to
be dampening confidence," Comerica Chairman and Chief Executive
Ralph Babb Jr. said during a conference call with investors.
Comerica reported more demand from energy companies and Babb
said demand particularly in Texas has accelerated. Overall, bankers
said those companies that are taking out new loans are
manufacturers.
U.S. Bancorp's Davis expressed frustration at the pace his bank
can make loans. "We are disappointed we're not keeping [loan
growth] at that pace" the bank set in previous quarters, he said.
Demand "is wholly insufficient as far as I'm concerned given the
money we have to deploy back into loans."
At U.S. Bancorp, loans grew 1% from the previous quarter, to
$181 billion, but had grown about 2% in previous two quarters. "It
is not doom and gloom," but expectation are more measured now, CEO
Davis said. The bank bought securities instead to invest its
capital. Its revenue rose 4.6%, to $4.5 billion.
Comerica said revenue fell 3% from the fourth quarter because
loans ran off faster than the bank could make new ones. Revenue
fell 1.2% from a year earlier, to $602 million. The bank's loan
book shrank 4.1% to $39 billion.
Rene Jones, chief financial officer of M&T Bank Corp. (MTB)
of Buffalo, N.Y., another healthy bank, told Dow Jones Monday that
loan demand wasn't robust. KeyCorp (KEY) of Cleveland said Monday
business loan demand improved but was overshadowed by real estate
loans that run off its books.
--By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com
--David Benoit contributed to this article.
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