The surprise of the recent U.S. credit downgrade and the resulting stock market rollercoaster ride of the past several days has left both banks and their clients with an overriding sense of uncertainty – uncertainty that seems likely to slow down any bank deals currently in the works, according to the Massachusetts Bankers Association (MBA).
Jon Skarin, director with the MBA, told Banker & Tradesman that a volatile stock market makes it difficult to price anything, and therefore it’s safer to lay low until the market stabilizes. But he emphasized that the short-term swings of the past week should be read as just that – a short-term swing with little immediate impact on individual banks.
But in the short-term, local bankers said the only thing they could be sure of was continued uncertainty.
"The one thing we’re absolutely certain of, is we’re not sure," said John O’Connor, CEO of Brockton-based The Community Bank, as he described bankers’ predictions for the future. For a non-stock bank like his, the chief impact would be a loss of consumer confidence, where would-be customers hold off on taking out loans. That’s a possibility in the current environment, he said, but it’s too soon to tell whether it will have a noticeable impact on loan levels.
Despite screaming headlines, Massachusetts community bankers said they don’t see dramatic immediate effects on their day-to-day business as a result of credit downgrades and fresh economic fears. It remains to be seen whether the travails of this month continue into the future and start causing bigger problems.
Those credit downgrades from Standard & Poor’s – on the U.S. and then later on institutions such as Fannie Mae and Freddie Mac – are likely to raise interest rates at some point, Skarin said. But the immediate impacts are plunging stocks and, according to bankers, lack of consumer confidence.
Local bank stocks did indeed see a volatile week: Pittsfield-based Berkshire Bank, for example, went from above $21 a share throughout Friday to a drop-off that brought it down to between $19 and $20 a share on most of Wednesday. Medford-based Century Bancorp went from $26.26 for much of Friday, dropped to $25.52 on Monday, but as of Wednesday worked its way back up to $26.60 – and other banks showed a similar bounce in values later in the week.
Timothy Telman, CEO of the Hyannis-based Bank of Cape Cod, told Banker & Tradesman the biggest impacts are with customers. As a commercial bank, the institution is in many ways reliant on the health of its customer businesses.
For example, one of his customers is a successful housing developer, Telman said, but the customer knows well that when the market swings like this, nobody buys homes.
"And this clearly has a very real impact on his business, which in turn has an impact on our business," Telman said.
It all depends on how long the nationwide financial woes persist, he added.
