||Businesses Are Sweet Spots for Banks
Sara Ross makes deep-fried vanilla cupcakes filled with whipped cream, among others, but the popularity of her bakery's unconventional creations wasn't enough for her old bank, which last year elected not to offer her a line of credit.
No worries, as Ms. Ross, of Somerville, Mass., was able to find another lender that extended her a $75,000 credit line -- and in May she moved into a plant that handles all of her baking needs. "I've seen more and more signs of business improving," she says.
Loans like Ms. Ross's, from Banco Santander SA's Sovereign Bank unit, are one of the few bright spots for the U.S. banking industry. Commercial and industrial loans outstanding jumped 14% to $1.45 trillion in July, the latest month for which figures are available, from a year earlier on a seasonally adjusted basis, according to the Federal Reserve.
The growth rate is twice as fast as gains in overall bank credit. Fed data show that non-real estate loans to businesses are up by double-digit percentages compared with a year earlier for four quarters in a row.
The recent growth in loans to companies largely reflects pent-up demand at larger businesses, the improved U.S. economy and looser loan terms at some banks, says James Chessen, chief economist at the American Bankers Association, a trade group.
If the economy remains stable or improves, growing loan volume and the resulting payments that will flow into banks will buoy those weighed down by low interest rates. In recent years, rock-bottom rates have hurt banks' net interest margins, or the difference between what banks collect on loans and pay on deposits.
Many businesses took time to restructure during the recession and are now in a better position to borrow and plow ahead with deferred capital plans, Mr. Chessen says.
Yet few bankers or economists are willing to predict that the spree will last. Questions about its staying power include the November elections and possible double whammy of tax increases and spending cuts dubbed the "fiscal cliff." The Federal Reserve said recently it expects to keep interest rates near zero until 2015.
Growing eagerness to lend, including by wooing business away from rival banks, is evident at many firms but appears particularly prevalent at some of the large regional lenders. In the second quarter, loans outstanding at BB&T Corp., a regional bank based in Winston-Salem, N.C., rose 8% from a year earlier to $113.81 billion. SunTrust Banks Inc., Atlanta, reported an 8.4% rise to $124.56 billion. At the TD Bank unit of Canada's Toronto-Dominion Bank, loans surged 15% to $86.3 billion.
The expansion reflects "basically a shift in the growth to the larger players," says John Pancari, a managing director and senior regional-banks analyst at Evercore Partners.
TD Bank has seen broad loan growth, with especially strong increases in commercial and industrial lending, says Greg Braca, head of corporate and specialty banking. "Our mantra has been taking (market) share," he says.
The industry gains come as more bankers report easier terms on business loans, according to the latest Fed survey of senior loan officers. The survey, released last month, said that "relatively large fractions of respondents" were charging lower rates relative to their costs of funds, in a trend that will help them win business but could add to pressure on profits if the economy fails to gain traction.
Ms. Ross, the cupcake-maker, previously banked with Winter Hill Bank, of Somerville, Mass. But she left because she couldn't secure a line of credit for her company, Kickass Cupcakes.
Small-business lending "is not an area that I would say we do record business in," Winter Hill Bank President and Chief Executive Sandra McGoldrick says.
Sovereign charges Ms. Ross an annual interest rate of 7.25% on whatever she borrows through her credit line. Sovereign, based in Boston, declined to comment.
BB&T says it is gaining clout as lenders outside the traditional banking system, which were active several years ago, pull back. Those companies "are being much more conservative and not leveraging up as much as they did before the crisis," says Daryl Bible, chief financial officer at BB&T, the 12th-largest U.S. bank by assets.
In Huntington, N.Y., Joseph Willen recently received a five-year, $500,000 equipment loan from TD Bank with an interest rate of 4%. The loan is being used to buy new furniture and computers for his title-insurance company, Advantage Title.
Coming out of the recession, Mr. Willen refocused his company's business model to take advantage of the rebounding commercial-real-estate market, and now is able to expand the business. The equipment loan will help pay for Advantage Title's move to larger office space in Melville, N.Y.
Still, shopping around for a loan reminded Mr. Willen that this is hardly a return to the boom years. He says he talked to three or four banks but had trouble getting favorable terms. "They seemed to be gun-shy about lending," he says.
(Source: The Wall Street Journal, 09/14/12)
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