A recent survey by financial adviser Grant Thornton shows only 38 percent of bankers are optimistic about their industry and 29 percent are optimistic about the economy – both numbers representing nearly 50 percent declines since last year’s poll.
But does the sentiment echo in New England?
Not particularly, according to four bank executives who spoke with Providence Business News last week. In separate interviews, the executives’ responses ranged from “optimistic” to “cautiously optimistic” as they looked at the economy and their industry for 2006.
Edward Hjerpe, president of Webster Bank in Rhode Island and Massachusetts, said he is predicting growth in the national economy, with the regional economy lagging slightly behind that. Overall, however, he said there is not a sour mood about the industry and the economy.
“I don’t think it’s pessimism,” Hjerpe said. “I just think it’s not as optimistic as it was in the past. Everyone’s going to have to work hard to get their share.”
Hjerpe said the market is “shifting,” and the competition for deposits in Massachusetts and Rhode Island has increased. “We had planned for deposit growth,” he said, “and we’re going to have to work hard to maintain it.”
Mary McGoldrick, senior vice president and chief investment officer for The Washington Trust Co., said the bank has seen deposit growth. Some of that, she said, could be attributed to “much more attractive” interest rates being offered to consumers.
“If you think back two years ago, interest rates were around 2 percent,” McGoldrick said.
“Now you see CDs maturing in six to 12 months that are paying considerably more.” (Washington Trust’s annual percentage yield for 12-month CDs is now as high as 2.80 percent.)
Loan growth has remained positive, all those interviewed said – an indicator they largely attributed to business growth.
“There’s a significant number of small businesses that are increasing their business and need more loan capital and long-term financing,” said Steven J. Issa, Rhode Island chief executive for Sovereign Bank.
McGoldrick said her bank sees loan growth, but it’s “not robust.”
In the Grant Thornton survey, bankers and analysts raised concerns about the yield curve – a graph that shows current interest rates for U.S. Treasury notes from three months to 30 years maturity. That was supposed to steepen, according to analysts, but it didn’t, and the Federal Reserve raised the rate to 4.66 percent on a 10-year government bond this year.
While economists generally view short-term rates being higher than long-term rates as a sign of a recession is coming, Federal Reserve Chairman Ben S. Bernanke said at a speech last week that he “would not interpret the very flat yield curve as indicating a significant economic slowdown.”
Merrill W. Sherman, president and CEO of Bank Rhode Island, agreed with that assessment, saying the industry will “squeeze through” the tight yield curve. In addition, Sherman said, it may not reflect fully in earned income growth.
“No one is having issues,” Sherman said. “It’s just really a little less profitable than we would like it to be.”
McGoldrick and Hjerpe both pointed to slowing home sales as an indicator of the local economy. McGoldrick said the amount of time homes are staying on the market is increasing. Hjerpe also predicted that house prices would rise more slowly now.
“In recent years, we’ve enjoyed significant price appreciation [for homes],” Hjerpe said. “That will slow significantly.”
McGoldrick also pointed to the performance of companies on the Standard & Poor’s 500 list as a sign of an economy is not about to bottom out. It had been predicted last year that the companies on the list would grow about 8 or 9 percent, she said. However, when 2005 ended, the companies actually reported revenue increases of 14 percent.
Still, despite that level of performance, McGoldrick said she’s only cautiously optimistic about 2006. “We didn’t want to raise expectations too high,” she said. “You can’t really count on a repeat performance.”
Issa said an economic survey conducted by Sovereign Bank predicted a slowdown in 2006.
However, he does not think it will be too significant.
“I think in the state of Rhode Island, we have so many good things going on right now,” Issa said. “I think the local economy is doing just fine.”
