By Andrew R. Johnson
The sluggish economy is dampening the business lending prospects
for some regional banks, which are already grappling with a plunge
in mortgage lending that has zapped revenue.
BB&T Corp. (BBT), Fifth Third Bancorp (FITB) and M&T
Bank Corp. (MTB) said Thursday uncertainty over the U.S.
government's fiscal situation and slow economic growth have made
companies more cautious about borrowing.
The sentiment adds more pressure to business bankers who have
already raised concerns that competition for business borrowers has
become too intense as lenders lower pricing and loosen loan terms
to win new customers.
The guarded outlook comes as lenders are trying to cushion the
blow from lower mortgage-banking revenue, which has declined as
refinancing activity comes to a halt due to rising interest
rates.
"The economy is just not producing much loan activity today,"
Kelly King, chairman and chief executive of BB&T, said during a
conference call with analysts Thursday.
BB&T's loan portfolio grew a tepid 2.2% from a year earlier
to $115.1 billion in the third quarter, with commercial and
industrial loans increasing 2.5% to $38.4 billion. Mr. King said
the company expects "modest loan growth" in the fourth quarter.
The Winston-Salem, N.C.-based bank said its profit fell 43% to
$268 million, or 37 cents per share, due to a tax-related charge
related. Excluding the $235 million tax adjustment, the bank said
it earned 70 cents per share in the quarter.
Revenue slipped 5% to $2.36 billion.
Adjusted profit met analysts' estimate of 70 cents per share but
missed revenue expectations of $2.4 billion, according to Thomson
Reuters.
BB&T's shares were down 0.7% at $33.99 in recent trading
Thursday.
Mr. King said more "positive changes out of Washington" could
result in "above trend-line growth" in lending by boosting
businesses' willingness to borrow, he said. "The minute they feel a
sense of confidence returning then I think you'll see a lot of
planned expansions."
Fifth Third, a regional lender based in Cincinnati, said use of
commercial credit lines fell to 30% in the quarter, the lowest
level in several years. That's down from 32% a year earlier and 31%
in the previous quarter.
CEO Kevin Kabat said businesses grew more cautious in the third
quarter as the debate over whether to raise the federal
government's borrowing ability dragged on, sparking fears of a U.S.
debt default.
"The nervousness and skittishness started to become pervasive
with regard to the debt deal and debt ceiling," Mr. Kabat said in
an interview. "The later you went, the more you saw pullback."
Each percentage point move in line utilization represents $400
million to $500 million in loans outstanding for Fifth Third, "so
it's a big deal," Mr. Kabat said.
The deal reached Wednesday to avert a government default could
help improve business confidence, but the potential for a repeat of
the issue could weigh on sentiment, he said
Fifth Third said its third-quarter profit rose 19% to $421
million, or 47 cents per share. The results included an $85 million
pretax benefit from the sale of shares Fifth Third owns in payment
processor Vantiv Inc. (VNTV).
Revenue increased 2.6% to $1.62 billion.
Analysts surveyed by Thomson Reuters had projected earnings of
41 cents a share on revenue of $1.55 billion.
Fifth Third's shares were up 2.8% at $18.91 in recent
trading.
Commercial lending has been a relative bright spot for many
banks over the last two years, helping to offset weak consumer loan
demand. But competition in commercial lending has ratcheted up in
the last year, weighing on banks' profit margins as they face
pressure to lower rates to win customers.
Pricing competition "feels like it's getting pretty heavy," Rene
Jones, chief financial officer of Buffalo-based M&T Bank Corp.,
said during a conference call with analysts Thursday.
In some markets, such as central Pennsylvania, businesses are
hesitant to invest in capital expenditures, Mr. Jones said. When
businesses are seeking loans, more banks are vying for the
deal.
"What that results in is there's just not a lot of activity but
there is a lot of folks actually going after the transaction," Mr.
Jones said.
M&T's total loans shrank by 0.7% from a year earlier to
$63.7 billion in the third quarter, driven by a 15% drop in
consumer real-estate loans. Its commercial loan portfolio increased
7.2% to $17.9 billion.
The bank reported a profit of $294.5 million, up slightly from a
year earlier. On a per-share basis, earnings slipped to $2.11 from
$2.17 as the latest period had more shares outstanding.
The latest period included after-tax gains of 26 cents a share
from loan-securitization deals. Analysts polled by Thomson Reuters
most recently expected a per-share profit of $2.08.
M&T's shares were down 3.3% at $112.21 in recent trading
Thursday as the company's expenses were higher than some analysts
expected. Expenses increased 7% to $658.6 million, driven by
spending related to its anti-money laundering programs.
The Federal Reserve in June cited M&T for deficiencies in
its anti-money laundering programs and ordered it to make
improvements. Such issues have delayed the closing of M&T's
acquisition of Hudson City Bancorp Inc. (HCBK).
M&T hasn't "spent any time thinking about Hudson City
lately" as it works on improving its compliance programs, Mr. Jones
said.
Write to Andrew R. Johnson at andrew.r.johnson@wsj.com
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