Ask a banker about the government, technology or compliance and he may get animated, perhaps even excited. But ask bankers to predict how the industry will operate, react and behave in the coming year, and the responses are much more measured.
There were very few certain, or extreme responses in Banker & Tradesman’s annual reader survey, conducted in partnership with Sudbury-based market research firm Bannon & Co. If the option to be “moderate” or to predict “no change” was offered, it was, by and large, taken.
For example, asked about their likely number of employees in 2012, almost 69 percent of respondent bankers said there would be no change compared to 2011.
In a broader question about whether it’s been easy or difficult to adopt new technology, 46 percent of respondents identifying themselves specifically as bankers said it’s been neither easy nor difficult, compared to 33 percent of all respondents in all industries.
“It does not surprise me that bankers would be cautious, if not downright pessimistic,” said Matt Sosik, president and CEO of Hometown Bank in Webster. “It’s a simple matter of math. You have interest rates at historic lows and a yield curve that is essentially flat. When you take those things and extend them over two, three, four years now, it’s tough for banks to make any money.”
And just because the Northeast hasn’t seen the kind of utter credit meltdown experienced in other parts of the country, doesn’t mean it’s immune. “Credit and housing,” Sosik said, are particularly problematic in Central Massachusetts.
Forty-eight percent of Central Massachusetts bankers diagnosed the health of that market as “somewhat sick,” while another 35 percent said it was “neither healthy or sick.”
Zero Tolerance
The anticipation of more of the same was echoed by credit unions throughout the survey. And credit unions’ concerns are similar to those of banks.
The coming year “is likely to bear a great deal of resemblance to 2011 for the commonwealth’s credit unions,” said Rob Kimmet, spokesman for the Massachusetts Credit Union League. “Tight margins and regulations will provide the key challenges while the consumer’s desire for better, local and better-priced financial services options will furnish the opportunities.”
On regulation, Sosik, a former Federal Deposit Insurance Corp. bank examiner, was blunt.
“Compliance, that’s the game of chasing your tail. You can never catch up to it,” he said. When he was a bank examiner, regulations “were much more limited in number and there wasn’t this expectation, in certain regulations, where there’s zero tolerance. Zero tolerance in some areas is borderline absurd, but we still have to spend gobs and gobs of money to make it as close to zero as possible.”
Slightly less than 63 percent of bank industry respondents said is they do add staff, they intend to add compliance personnel in 2012. Fifty-one percent of bankers said compliance costs had increased between 11 percent and 25 percent since the passage of Dodd-Frank. Still, in a survey published recently by Reason, a libertarian magazine, respondents said they like their bank more than they like the government.
If the government’s behavior doesn’t improve, very few firms will feel confident enough to hire and the generally slack economy will continue to be uninspired, said John Hailer, CEO of Boston- based investment management firm Natixis Global Assoc.
“I think we’re going to be in this muddling along, in this difficult period, for a long time to come if we keep at these anemic job levels,” Hailer said. “It would take adding 350,000 jobs per month for three years to get back to pre-recession levels. And the ineptitude in Washington right now is a weight on the market, and not just the stock market. It’s the capital markets, banking.”
Room For Optimists
Still, there are optimists. Richard Gavegnano, president and CEO of East Boston Savings Bank, is among them.
“Most bankers are overcautious, and the time is right for decision making, to seize opportunities,” he said.
Gavegnano predicted that signs of improvement will emerge in the coming spring. Those economic improvements will be boosted by election results later in the year. The election, Gavegnano said, should provide what Hailer said is currently missing: “Clear direction and confidence.”
“All cycles come to an end, and nobody rings your doorbell to tell you the exact moment,” Gavegnano said.
Gavegnano is not alone.
Jay Tuli, a business development officer at Arlington-based Leader Bank, said depending on where a bank does business, its outlook may be good or bad. In Leader’s territory, he said, things are looking up.
“We’re seeing an improving local economy,” Tuli told Banker & Tradesman. “The tech sector is growing, the health care sector is growing, there’s a lot more competition for commercial loans, which is a good sign for the economy.”
Also among the optimists is Steve Andrews, a senior vice president at Boston-based Sovereign Bank.
In 2010, the collective opinion was that 2011 would the year the economy turned around. That didn’t happen. But the economy tends to work in unexpected ways.
Andrews said Sovereign, like many other banks, has seen moderate loan growth and has concentrated on keeping expenses in check.
He said what he hopes to see is “the sectors that carried us through – manufacturing, consumer spending and corporate spending” to begin hiring.
“Hopefully that’ll be the next shoe to drop…and the housing market, even if we picked up a couple hundred thousand units, that could take GDP from 2 percent to 3.5 percent.”
