U.S. bank loans are at such record lows that they have done little to contribute to the nation's economic recovery, the head of financial institutions ratings at Standard & Poor's said Wednesday in New York at an S&P Capital IQ cross-asset conference.
Federal Deposit Insurance Corp. data shows that U.S. loan growth to nominal GDP has stood at an historically low multiple of 0.31 since the banking crash of 2008, compared with its high of 1.75 from 2001 to 2008, said Rodrigo Quintanilla, head of research for North American Financial Institutions Ratings. This compares with a multiple of 0.64 in the 1930s during the worst of the Great Depression, Quintanilla said.
"We believe the U.S. banking industry is undergoing the most radical structural change since the Great Depression," he said.
As of March 13, S&P's rating outlook on 56 U.S. banks showed recent downgrades at 30%, upgrades at 11% and 59% unchanged. Of the banking universe, 24% have a negative outlook, 4% are positive, and 72% are stable. No bank has a triple-A rating from S&P; the highest rating is A+, which is four grades below triple-A.
"If the Occupy Wall Street people saw this number, they'd have a field day with it," said one commenter in the audience during the conference's question-and-answer session.
U.S. Banking in 'Radical' Transition, but Stock Buyers Are Happy
Quintanilla concluded that U.S. banks are an industry in transition, struggling in the face of:
- Increased regulation, supervision and enforcement
- Business models that may change radically
- Consolidation of weaker and smaller entities
- Leveling of the playing field between regulated and non-regulated U.S. financial institutions
The gloomy picture for banks stands in sharp contrast to the overall outlook for U.S. corporate debt and equities, according to S&P Capital IQ analysts.
With the economy in recovery, investors are taking on more risk in 2012, said Robert Keiser, vice president of Global Markets Intelligence, who views the markets globally as "risk on." U.S. corporate debt with a triple-B or A rating is outperforming the market, while S&P 500 corporations overall have a low risk of default, he said.
The consensus view for the S&P 500 stock index predicts a fourth-quarter 2012 growth rate of 15.5% for all sectors, three times higher than the third-quarter prediction of 5.8%. And clearly, stock investors are positive on banks — consensus on the financials sector predicts fourth-quarter growth of 25.9% and third-quarter growth of 9.1%.
