They wanted to sound positive, but phrases like “banks have huge clouds on them,” and “it will be hard to outgrow the runoff book [read: bad loans]” kept cropping up.
Taken all together, the bankers who spoke at the Sanford C. Bernstein Strategic Decisions Conference over the past few days are waiting. They’re waiting for loan growth to come back. They’re waiting for the final rules on various regulatory changes. They’re waiting to see how much capital they’ll have to hold against loans and other investments.
JPMorgan Chase Chairman and CEO Jamie Dimon made it clear, if regulation and capital rules don’t go his way, the customer will pay. He can make up for lost revenue by raising prices on the services he provides. Dimon’s good news: “The new inventory of foreclosures will be lower 12 months from today than it is now.” At least he said the pace of new lending is picking up, and he thought the credit card business might finally see some growth by the end of the year.
That’s more than some of his peers could say. Bank of America CEO Brian Moynihan said he thought that new loans wouldn’t be able to counterweigh the effect of letting the bank’s portfolio of bad loans run off at the rate of about $20 billion a year. “But remember it cost us $1.8 billion [in charge offs] in the first quarter, so it's not a bad thing its going away," Moynihan added, referring to the fact that at least the bank is whittling away at its “runoff book”.
"Although it’ll be expensive for (the top four players)… it’ll be better for us than it is for (smaller banks)."
John Stumpf, Chairman and CEO of Wells Fargo also sounded as if loan growth was hard to come by as consumers have shed debt to the tune of $1 trillion and probably would continue to do so for a while. That didn’t phase him, “That doesn’t mean we can’t grow loans in that environment,” Stumpf said.
On the positive side, credit will continue to get better as long as there isn’t a significant bump up in unemployment, Stumpf said. His overall characterization of the recovery: “Bumpy…but on it’s way to improvement.”
It’s not just a mortgage issue in financial services. Saying that regulatory issues would increase the cost of doing business for global financial players, Goldman COO Gary Cohn couldn’t promise that the firm’s return-on-equity would creep above 15 percent. That’s a comedown from the heady days of 2007 when it topped 30 percent.
Cohn addressed the various investigations that Goldman is the object of, saying he thought all the information was already out there. Shortly after he spoke the news broke that the New York District Attorney will be examining Goldman’s actions leading up to the financial crisis.
For all the complaining about how regulation is hurting the business, one banker who sounded unconcerned was James Rohr, Chairman and CEO of PNC . “This regulation is going to hit the top four players differently than it hits us…and I think it lands on smaller banks very heavily,” Rohr said. “Although it’ll be expensive for us…it’ll be better for us than it is for them.”