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Banks Are Easing Terms for Middle-Market Lending
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CNBC Reporter
Analysts said despite a loosening up of restrictions on loans, banks are not so desperate to lend they are taking on lower quality credits in this market. They are still focused on capturing better quality clients, just as the clients are focused on doing business with the better quality banks.
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Nell Redmond / AP A Bank of America branch. |
"Those banks that are well capitalized, that have stronger credit cultures . In other words, they didn't get themselves deep into trouble," Sandler O'Neill's Siefers said, "Those are the banks that will win as we look forward over the next several years."
Some banks are already declaring victory.
"I think the better banks, of which I think JPMorgan is one of them, are stealing share from the weaker banks," said Todd Maclin, CEO of JP Morgan's [JPM
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] commercial banks. "Our customers do their homework. They want to know if I get a loan committment from you — are you going to be there when I need the money? I need to expand or grow my business — are you going to be there?"
BB&T's [BBT
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] chief commercial credit officer Tol Broome said this flight to quality has helped his bank. In the fourth quarter, the Winston-Salem, NC-based bank saw middle-market lending increase 6.9 percent. Broome credited that growth more to market share gain than organic growth.
"We're not picky in terms of who we take it away from: community banks and credit unions and in other cases larger national banks," he said.
The larger national banks maintain they have some other advantages over their smaller rivals. Bank of America's Whitley said the money her bank has spent investing in new technology provides an advantage to BofA's middle-market clients that's not available to clients of banks that cannot afford to spend on tech. JPMorgan's Maclin believes the bank's global reach is a selling point for customers whose business increasingly is linked to overseas markets whether it be for exports, or sourcing.
"Because we're a U.S. bank they feel comfortable using us in India, China and other parts of the world," he said.
Analysts are less convinced the technology and an international presence are major selling points for middle-market companies.
"I'm having a tough time distinguishing who has an advantage with the platforms," said Stephen Moss, analyst with Janney Montgomery Scott LLC, when asked about the advantages of technology in serving middle-market clients. While Siefers downplays the advantage brought by banks' international platforms.
"A typical middle-market customer doesn't have that much in the way of overseas operations so its credit needs tend to be domestically centered," he said.
In this highly fragmented market analysts believe it's the relationship that matters most — a relationship that can take five years to build, but could last decades. This helps level the playing-field for smaller banks, which might have stronger ties to local businesses than big national banks. Still, with many smaller banks hamstrung by loan portfolios heavily invested in the still-troubled commercial and residential real estate market, bigger banks can deploy their most potent weapon, capital. Not only can they take on new loans offered at favorable pricing for the borrowers, in return for those favorable prices they can ask the borrower to give them other business like cash and asset management. It is a scene credit market analysts see being played out repeatedly in the middle-market space.
Among the banks analysts say are making the most headway these days: Wells Fargo [WFC
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], JPMorgan, Bank of America and regional banks including BB&T, Fifth Third [FITB
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], PNC [PNC
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] and U.S. Bancorp [USB
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]. However with competition being so fierce these analysts say, the profit margins on these loans have come down quickly.
"Whatever demand there is, the profitability dynamic is not what people hoped it would be," said Siefers.
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Data is a real-time snapshot *Data is delayed at least 15 minutes
