Smaller Banks Take Advantage of the Economic Situation
As Leading Banks were Forced to Cut Back Lending to Increase Capital, Regional Banks Increased their Loan Portfolios…
The 2008 financial meltdown has had a seriously detrimental effect on many of the nation’s leading bank’s consumer loan profiles over the past twelve to eighteen months. But this is just the beginning of the story.
We all remember when nearly every banking and financial institution simply stop lending in efforts to slow down their diminishing capital levels, while businesses and consumers alike sat back, trying to stay away from adding to their mounting debt.
In the wake, smaller community and regional banks were able to get a foot-up and take advantage of the situation. In essence, small banks managed to take a significant amount of market share away from their larger, nationally known, competitors.
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One major disparity can be seen when comparing credit card portfolios. Four of the largest lenders in regards to outstanding credit card loans, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., and HSBC North America Holdings Inc., all posted declines of over 10 percent in 2009, according to SNL Financial.
Only 44 of the top 200 credit card lenders posted declines, while regional banks, including PNC Financial Services Group Inc., U.S. Bancorp, SunTrust Banks Inc., and BB&T Corp., had double-digit increases to their credit card portfolios.
All in all, consumer lending in 2009 was stagnant at best and consumer loan portfolios, which includes total consumer loans and mortgage loans outstanding, declined at seven of the top ten bank holding firms, according to SNL. Citigroup, JPMorgan Chase, HSBC, and Citizens Financial Group Inc., four of the seven banks, experienced double-digit percentage declines.
Total outstanding balances, of the top 200 banks by consumer loans, saw outstanding balances increase from $3.11 trillion from $3.10 trillion, a rise of just 0.4 percent, in 2008. While the auto and home equity loan portfolios of these banks showed considerable decreases.
Almost half of the200 holding companies and thrifts ranked by home equity holdings saw their closed-end loans and lines of credit decline last year. During the same time, combined volume of HELs outstanding fell 3.4 percent, to $774.6 billion, this after a 25 percent leap in 2008, according to SNL.
In regards to auto loan portfolios, the top 200 thrifts had a drop of 15 percent, to $147 billion.
The waning growth of consumer loan balances in 2009, and the sharp decline in auto loans and HELs, can be attributed to consumers choosing to repay their debt, rather than continue to mount up more during the highest level of unemployment in nearly 26-years and a time when home values plummeted.
Experts say that this slowdown in consumer lending cannot be blamed on the demand alone.
“Consumer loan demand has been way down. But, having said that, people still have to buy homes; people still have to buy cars,” said Mary Beth Sullivan, managing partner at the consulting firm Capital Performance Group in Washington. “Demand is down from incredibly high levels, but demand has not gone away all together.”
The main reason why many smaller banks were able to increase their loan levels, while others had no choice but to scale theirs back, can be traced back to individual capital levels.
“Given what has taken place over the last couple of years, a lot of banks weren’t in a capital position to grow their loan portfolios,” Sullivan said. “But smaller banks that didn’t have a problem with capital were in a great position to pick up market share.”
When losses escalated while mortgage and credit card portfolios, plus overall capital levels, managed to decline, the federal government required the ten of the nineteen top banks in the nation to raise additional capital to curve potential future losses. This opened the door for smaller banks and lending institutions, allowing consumers who had second thoughts about the national lenders to put their faith in more stable banks.
All the while, a lot of banks took advantage of the distresses marketplace, growing their loan portfolios through acquisitions of less fortunate, faltering institutions.
Examples of this include New York Community Bancorp Inc. in Westbury, NY, and East West Bancorp Inc. in Pasadena, CA. These banks grew leaps and bounds following the Federal Deposit Insurance Corp.-assisted deals last year.
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Tags: Bank of America Corp., BB&T Corp., Big Banks, Capital Performance Group, Citigroup Inc., Citizens Financial Group Inc., Credit Card Portfolios, Home Equity Loan Portfolio, Home Equity Loans, HSBC North American Holdings Inc., JPMorgan Chase & Co., New York Community Bancorp Inc., PNC Financial Services Group Inc., Small Banks, SNL Financial, SunTrust Banks Inc., U.S. Bancorp, West Bancorp Inc.
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