Deposits Piling Up Amid Uncertainty: City National CEO
In the first and second quarter, City National had more loan originations than it had in its entire history, the bank’s CEO, Russell Goldsmith, told “Squawk on the Street” on Thursday.
“Our mortgage volumes are huge,” the bank's CEO said, as customers take advantage of low rates to refinance and when rates drop refinance again.
“At these low, low rates people would be advised – like corporations are doing – to readjust their balance sheet,” he said.
“We’re also getting a lot of new clients,” Goldsmith said. “About half of that are clients fleeing from the big banks wanting to come to a regional bank like City National that didn't do all this nonsense that people are angry about.”
Regional banks, like US Bancorp and PNC Financial , have also been trading at a premium to their big bank counterparts. Banks like Citigroup and Bank of Americaare trading at half or 60 percent of book value, while regionals are trading above book. Phil Purcell, the former head of Morgan Stanley, has called for big bank managements to consider splitting off assets in order to improve shareholder returns and narrow the gap. (Read More:Big Banks Should Consider Spinoffs: Purcell.)
Banks are also awash in liquidity, and City National has seen a 46 percent increase in deposits in the past four years, Goldsmith said.
Some of this is clients parking their money at the bank as they wait for clarity on the U.S. fiscal situation. “Clients are sitting on the sidelines,” he said, and leaving their money in the bank. “They want to know what their tax rates are going to be.”
Goldsmith does expect Congress to work out the country’s fiscal situation. “I think we need to see some type of compromise in Congress not just in the short-run on the fiscal cliff, but a grand bargain like the president proposed,” he said. (Read More:Boehner Says Not Confident About 'Fiscal Cliff.')
But there is risk that nothing gets done and “then you drive this weak GDP growth right below zero,” the bank executive said. ”It’s self-fulfilling. A slow economy hurts hiring.”