Banks Now Resorting To Begging
Today, FORBES.COM has reported that banks have resorted to begging for consumer loans. This is interesting, because earlier today, I received a phone call from my local bank asking me if I needed to take out a home-equity loan. Of course, I told the young woman on the telephone that I was not going to surrender the equity in my home just to keep the criminal enterprise she represents afloat.
This is what we have come to with the nation's economy falling apart --- banks are now resorting to begging for consumer loans, because "corporate loans just aren't profitable enough."
While that might be true, it just isn't my problem.
Here is the FORBES.COM article:
THE BANKS GO BEGGING
Liz Moyer, 08.08.05, 6:00 AM ET
It's an odd day when bankers go begging for assets.
But several deals in recent weeks highlight their conundrum: Booming deposit growth has outstripped loan demand, forcing bankers to scratch for assets that can help relieve some of the pressure from narrowing profit margins.
Much as been said about the shrinking gap between short- and long-term interest rates--what the banks call "the yield curve"--and that is partly to blame for the struggle to squeeze profits from lending. Intense competition for corporate and industrial loan business is another problem as banks cut deals and lower underwriting standards to win loan assignments.
"Big banks need asset generators, and corporate loans are just not profitable," says David Hendler, an analyst at CreditSights. "Consumer loans are needed."
What's so magical about consumer loans? They are short term, and their interest rates move quickly when the Fed takes action. Credit cards, home equity and auto loans have higher rates that create wider spreads to the deposits banks use to fund them.
Last month, Bank of America (nyse: BAC - news - people ) struck a five-year deal to acquire $55 billion of consumer auto loans from General Motors Acceptance Corp. (nyse: GMA - news - people ). In June, it announced a $35 billion deal to buy credit card lender MBNA (nyse: KRB - news - people ). Both moves were seen as a quick way to amass higher-yielding assets.
HSBC Holdings' (nyse: HBC - news - people ) U.S. consumer finance subsidiary just struck a deal to buy smaller credit card lender Metris Cos (nyse: MXT - news - people ) for $1.6 billion. Earlier this year, Seattle-based thrift Washington Mutual (nyse: WM - news - people ) agreed to buy yet another credit card lender, Providian Financial (nyse: PVN - news - people ) for just over $6 billion.
This month Puerto Rican bank Popular (nasdaq : BPOP - news - people ) got a deal to buy the online mortgage and auto lender E*Loan for $300 million.
Top executives at Charlotte-based Wachovia (nyse: WB - news - people ) are yearning to get back into the credit card business. Wachovia sold its operations in 2001, and the bank was believed to have been in the hunt for MBNA this year.
"There are a number of banks that are deposit rich but asset poor," says Christopher Wolfe, senior director at Fitch Ratings, which said Thursday the HSBC deal should boost the British bank by giving it more scale in a consolidating industry. What's more, Wolfe says, "specialty players bring a lot of marketing and IT" knowledge.
The scramble for assets isn't just limited to the biggest banks. Commerce Bancorp (nyse: CBH - news - people ) in Cherry Hill, N.J., recently announced plans to introduce its own Visa credit card, targeted for depositors. Commerce is widely praised for its adept consumer marketing, achieving deposit growth of 39% over the last five years, while loan growth has lagged at 27% for the same period.
Lending experts say the trend in favor of consumer loans should continue for the foreseeable future. Mortgage demand is strong, according to July Fed data. Commercial loans are also growing according to the Fed, though RMA, a credit industry group in Philadelphia, reports that commercial and industrial loans are not as robust as a few years ago because would-be borrowers still have enough cash on hand to fund operations.
The competition for loan customers, both consumer and commercial, could result in some credit losses down the road. The Office of the Comptroller of the Currency said last month that it is the first time in 11 years that it has seen a relaxation of underwriting standards for retail loans.
"It's an intensely competitive environment," said Pam Martin, the director of regulatory relations at RMA, an association whose members include bank loan and risk management executives. "Banks are under mounting pressure to achieve growth."
SOURCE:
The following source was used in the preparation of this Kentroversy Paper . . .
The Banks Go Begging
banking
Federal Reserve
home mortgage
personal savings
home finance
This is what we have come to with the nation's economy falling apart --- banks are now resorting to begging for consumer loans, because "corporate loans just aren't profitable enough."
While that might be true, it just isn't my problem.
Here is the FORBES.COM article:
THE BANKS GO BEGGING
Liz Moyer, 08.08.05, 6:00 AM ET
It's an odd day when bankers go begging for assets.
But several deals in recent weeks highlight their conundrum: Booming deposit growth has outstripped loan demand, forcing bankers to scratch for assets that can help relieve some of the pressure from narrowing profit margins.
Much as been said about the shrinking gap between short- and long-term interest rates--what the banks call "the yield curve"--and that is partly to blame for the struggle to squeeze profits from lending. Intense competition for corporate and industrial loan business is another problem as banks cut deals and lower underwriting standards to win loan assignments.
"Big banks need asset generators, and corporate loans are just not profitable," says David Hendler, an analyst at CreditSights. "Consumer loans are needed."
What's so magical about consumer loans? They are short term, and their interest rates move quickly when the Fed takes action. Credit cards, home equity and auto loans have higher rates that create wider spreads to the deposits banks use to fund them.
Last month, Bank of America (nyse: BAC - news - people ) struck a five-year deal to acquire $55 billion of consumer auto loans from General Motors Acceptance Corp. (nyse: GMA - news - people ). In June, it announced a $35 billion deal to buy credit card lender MBNA (nyse: KRB - news - people ). Both moves were seen as a quick way to amass higher-yielding assets.
HSBC Holdings' (nyse: HBC - news - people ) U.S. consumer finance subsidiary just struck a deal to buy smaller credit card lender Metris Cos (nyse: MXT - news - people ) for $1.6 billion. Earlier this year, Seattle-based thrift Washington Mutual (nyse: WM - news - people ) agreed to buy yet another credit card lender, Providian Financial (nyse: PVN - news - people ) for just over $6 billion.
This month Puerto Rican bank Popular (nasdaq : BPOP - news - people ) got a deal to buy the online mortgage and auto lender E*Loan for $300 million.
Top executives at Charlotte-based Wachovia (nyse: WB - news - people ) are yearning to get back into the credit card business. Wachovia sold its operations in 2001, and the bank was believed to have been in the hunt for MBNA this year.
"There are a number of banks that are deposit rich but asset poor," says Christopher Wolfe, senior director at Fitch Ratings, which said Thursday the HSBC deal should boost the British bank by giving it more scale in a consolidating industry. What's more, Wolfe says, "specialty players bring a lot of marketing and IT" knowledge.
The scramble for assets isn't just limited to the biggest banks. Commerce Bancorp (nyse: CBH - news - people ) in Cherry Hill, N.J., recently announced plans to introduce its own Visa credit card, targeted for depositors. Commerce is widely praised for its adept consumer marketing, achieving deposit growth of 39% over the last five years, while loan growth has lagged at 27% for the same period.
Lending experts say the trend in favor of consumer loans should continue for the foreseeable future. Mortgage demand is strong, according to July Fed data. Commercial loans are also growing according to the Fed, though RMA, a credit industry group in Philadelphia, reports that commercial and industrial loans are not as robust as a few years ago because would-be borrowers still have enough cash on hand to fund operations.
The competition for loan customers, both consumer and commercial, could result in some credit losses down the road. The Office of the Comptroller of the Currency said last month that it is the first time in 11 years that it has seen a relaxation of underwriting standards for retail loans.
"It's an intensely competitive environment," said Pam Martin, the director of regulatory relations at RMA, an association whose members include bank loan and risk management executives. "Banks are under mounting pressure to achieve growth."
SOURCE:
The following source was used in the preparation of this Kentroversy Paper . . .
The Banks Go Begging
banking
Federal Reserve
home mortgage
personal savings
home finance
posted by Kentroversy at 7:41 PM
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