Regional banks are noticing a big boost in demand for borrowing from manufacturers, retailers and distributors who have been missing in action since the financial crisis hit. The tax cuts are causing optimism that is fueling businesses’ desire to expand. Jenny Surane writes:
After struggling with slowing loan growth throughout much of 2017, U.S. regional bank executives said the promise of lower taxes spurred a pick-up in commercial loan demand in the fourth quarter, as well as a rise in consumer spending on credit and debit cards. That, along with increased interest rates, prompted many of the lenders to raise their loan growth and profit outlooks for the coming year.
“It was almost like a dam broke when the tax legislation got enacted,” said Steve Steinour, chief executive officer of Huntington Bancshares Inc. in Ohio. “We had a massive amount of activity in those final three weeks of the year.”
“It’s a more constructive business environment and that’s what’s been missing in the last couple of years in the recovery,” said KeyCorp CEO Beth Mooney, whose firm raised its long-term targets for return on tangible equity this year to a range of 15 percent to 18 percent. “You’re going to see more willingness on the part of companies and small businesses to invest more, and, as they invest, there will be tax advantages to doing it with debt.”
Global lenders including Bank of America Corp. have warned that large corporate clients may take a break from borrowing as they repatriate overseas earnings. For middle-market companies that regional banks typically serve, it’s a different story, said Kelly King, CEO of lender BB&T Corp.
“Small retailers, manufacturers and distributors — they have frankly struggled over the last 10 years as the economy has been driven more” by the largest businesses, King said in a Jan. 19 interview with Bloomberg Television. “Now that’s reversing and we’re going to see Main Street come alive.”
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Jeremy Jones, CFA
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