The March 1 edition of NorthWestern Financial Review includes an ag-industry outlook featuring analysis from Prof. Ernie Goss of Creighton University, Jeff Wolfgram of Dakota MAC and Dave Cebulla of UMACC and Pine Country Bank. One indication of relative stability in the ag economy is that Midwestern farmland values have held up pretty well through the recession; Goss and Wolfgram both emphasize this point in our story.
Last week the Chicago Fed released new figures on seventh district farmland values. The district as a whole posted a 2 percent increase for 2009, driven by gains of 7 percent in Indiana, 4 percent in Iowa and 2 percent in Illinois. Wisconsin farmland values fell by 1 percent, and Michigan values declined by 6 percent.
Last Friday, Feb. 19, both Minnesota senators found themselves occupied with bankers, although neither serves on Sen. Dodd’s banking committee. Sen. Al Franken participated in an economic development forum in Bemidji, addressing a wide range of issues, including banking. Meanwhile, Sen. Amy Klobuchar listened to 40-some bankers discuss issues at a 90-minute meeting at the Minneapolis Club.
Paul Welle, a vice president at First National Bank in Bemidji, asked Sen. Franken to protect community banks from additional regulatory burden. The Saint Clout Times covered the meeting with this story.
In Minneapolis, Russ Nelson moderated a meeting organized by Pinehurst Bank of St. Paul. Nelson is a board member at the bank. Minnesota Bankers Association President/CEO Joe Witt and Independent Community Bankers of Minnesota President/CEO Marshall MacKay were there, as well as bankers from all over the state. Sen. Klobuchar and three aides took notes as bankers shared their frustrations and concerns.
Most of the banker comments noted the rigidity of examiners; bankers said they were looking for regulatory flexibility to help them get through economic challenges.
At one point, a banker asked Sen. Klobuchar, whether she wants community banks to survive. She responded: “yes, we absolutely want community banks.”
Klobuchar said she found the comments to be instructive and she assured them she would follow up on their concerns.
When I first started following the Minnesota legislature in the mid-1980s for NorthWestern Financial Review magazine (then called Commercial West), the banking trade groups used to host huge receptions and dinners. It seemed like most of the legislators came, Republicans and Democrats alike. The lawmakers mingled with bankers and other lawmakers. We all got to know each other, at least a little bit, through these kinds of gatherings. I am told that most industry groups hosted at least one such event during the legislative session every year.
Somewhere along the line, however, a law was passed that made it illegal for a legislator to accept a free meal from a constituent or lobbying group. This put an end to those grand social events. While I can understand the purpose of the law from an ethical standpoint, I also recognize one of the sad consequences: we have lost opportunities for everyone to get together and visit. This is particularly notable among the lawmakers themselves. Republicans and Democrats visit with each other on a social basis far less today than they did years ago. We see the result: a polarized legislature where party differences are greater than ever and partisan rhetoric seems harsher than ever.
I think something similar has happened in banking. Years ago, bankers from the largest institutions used to visit frequently with bankers from smaller institutions. The large banks were serious correspondent banking services providers. They used to host events where they would invite representatives from hundreds of small banks to listen to a speaker, enjoy a meal and visit with one another. Representatives from the large banks used to spend all kinds of time with the folks from the smaller banks, all under the guise of correspondent banking. This promoted a certain level of industry unity.
But throughout the 1990s, things changed. Bankers at the smaller institutions grew increasingly concerned about competition from those larger banks, so they turned to bankers’ bank for correspondent services. The bankers’ bank movement grew so much that today, a good portion of the correspondent business that large banks used to provide is now being provided by bankers’ bankers. This means that the socializing that used to take place between those large bank representatives and the folks from small banks has dropped way off. And one of the results: a greater divide in the industry between the industry’s largest players and its smaller players. There is less industry unity.
Too big to fail, of course, is the issue that really separates the super-big banks from the smaller banks, but I suspect the divide is exacerbated by a diminishing level of communication between folks from large banks and folks from smaller banks.
The FDIC released its quarterly banking profile today. Chairman Bair’s press conference is here. The profile itself is here. Some highlights:
- The industry “essentially [broke] even” in fourth quarter, earning just less than $1 billion. Even that weak aggregate earning figure “represents significant improvement” over the record loss of a year ago, Bair said.
- Key factors in the year-to-year improvement were interest income, non-interest expenses and lower loan-loss provisions.
- Nevertheless, about one in three insured institutions reported a net loss for the fourth quarter.
- Non-current loans continued to rise, albeit at a slower pace — the third consecutive quarter in which non-currents rose at slower rates.
- 45 banks failed in the fourth quarter, driving the year-end total to 140, the highest annual total since 1992.
- All loan categories had declining balances in 2009. Total loans fell by 7.5 percent, the largest full-year decline since 1942.
- The problem-bank list topped 700.
The passing of former Secretary of State Alexander Haig on Saturday brings to mind a spring 1988 event hosted by the old Norwest Bank. Mr. Haig was the speaker at a gathering the bank hosted for 1,400 of its private banking customers in Minneapolis. I got to visit with Mr. Haig during a pre-event reception.
I remember that Lloyd Johnson, who was chairman, president and CEO of Norwest, presented Mr. Haig with a peace pipe as a memento of his trip to Minnesota.
Mr. Haig talked about the upcoming presidential election, in which then-Vice President George Bush was to run against Michael Dukakis. He also talked about the world political stage. Here is how I wrote about it in the May 7, 1988 edition of Commercial West:
Regarding the world economy, he said the world is shifting from polar domination to multipolar domination. “By the year 2000 the United States and the Soviet Union will not dominate the world as they do now,” he said. By the middle of the 21st century, he added, China and India will enter the class of Super Powers.
Al Haig was an early Republican candidate for president in that 1988 campaign. By the time of the Norwest event, he had dropped out. Someone asked if he would ever run for president again and he responded “never say never.”
Narayana Kocherlakota addressed the Minnesota Bankers Association yesterday, in his first public speech since taking over as president of the Minneapolis Fed last October. Kocherlakota said a “nascent recovery is under way,” and he expects the recovery to continue with 3 percent growth over the next two years. He characterized his forecast as a little more pessimistic than the FOMC’s, which expects growth of 3 percent this year and 4 percent next year.
Political uncertainty is a factor in his lower forecast:
“There is a great deal of political uncertainty related to major policy initiatives underway in Washington. Congress is considering proposals for enormous changes in health care and in the structure of financial regulation…[and] the capricious winds of politics seem to change them on a near-daily basis.”
Kocherlakota expressed concern about the nation’s unemployment rate and discussed scenarios that could cause inflation to rise:
“Deposit institutions are holding over a trillion dollars of excess reserves (that is, over 15 times what they are required to hold given their deposits). These excess reserves create the potential for high inflation. Suppose that households believe that prices will rise. They would then demand more deposits to use for transactions…these extra deposits become extra money chasing the same amount of goods and so generate upward pressure on prices.”
He hastened to add, and to emphasize, that he did not expect high inflation to set in:
“We would need a combination of bad monetary policy and poor fiscal management. I do not foresee this combination as likely to occur.”
Kocherlakota waded into the debate about limiting the Fed’s supervisory role, saying that its firsthand knowledge of banks helped the Fed react to the financial crisis. Kocherlakota said the Fed “has every incentive to do a good job in assessing the borrower quality” before extending a loan through the discount window or programs like the Term Auction Facility; if the loan goes bad the loss is on the Fed’s balance sheet.
“Suppose instead that some other agency were responsible for providing this information to the Federal Reserve. What exactly are this other agency’s incentives to provide…the best possible information? This other agency is not going to suffer a loss for making a bad loan–the Federal Reserve is.”
He also noted that the Fed’s supervisory experience gave it the scope to conduct last year’s stress tests of the country’s 19 largest banks, something no other “institution in the government would have the kind of collective expertise to orchestrate.”
Thirty to 50 protesters interrupted a meeting of 200 bankers this morning at the Hilton Garden Inn in St. Paul. The Minnesota Bankers Association was hosting its annual legislative conference when at about 10:15 a.m. the meeting was interrupted by a group of people chanting anti-bank slogans and waving signs.
MBA personnel closed the doors to the ballroom where the meeting was taking place, keeping most of the protesters in the lobby. A few protesters got inside the meeting room, however, and disrupted the meeting for about 7 minutes. MBA President/CEO Joe Witt was speaking when the meeting was interrupted. Witt escorted one of the protesters out of the room. The protesters dissipated soon after.
It is believed the protesters represented a group of custodial workers, who staged a protest in the Minneapolis skyway system yesterday.
On Feb. 4, the same group of people attempted to interrupt a meeting of the MBA’s Government Relations Council, but the group mistakenly barged into a meeting of the Minnesota Chamber of Commerce, which was taking place in a room next door at the Minnesota River Center.
John Ruan, owner of Bankers Trust, the largest independent bank in Iowa, passed away yesterday. He was 96.
Mr. Ruan, one of the titans of Iowa business and civic circles, is best known for starting a trucking company, now called Ruan Transportation Systems. He was a major positive force for the city of Des Moines, and in 1990 started a foundation that assumed sponsorship of the World Food Prize.
The 36-story Ruan Center is a hallmark of the Des Moines skyline; Mr. Ruan also is responsible for the construction of the 14-story Two Ruan Center and the downtown Des Moines Marriott Hotel.
“In John Ruan’s day, they called them self-made men — individuals with guts, determination and an ability to anticipate marketplace trends. Today a man like Mr. Ruan would be called an entrepreneur, a visionary. His spirit did not come from seminars or books, but rather life experiences and a belief in himself and the people around him,” said Suku Radia, who met Mr. Ruan in 1975. Today, Radia is president and CEO of Bankers Trust, which has been in the Ruan family since 1964.
Here is the press release issued by Ruan Transportation Corp. Here is the story in the Des Moines Register.
Regulatory focus on Real Estate Settlement Procedures Act compliance has revealed a strange quirk, reported Rose Oswald Poels, senior vice president and counsel at the Wisconsin Bankers Association. She spoke as part of a panel that addressed the WBA’s annual executives conference earlier this week in Milwaukee.
Based on conversations she has had with bankers who have been examined for RESPA compliance already this year, Oswald Poels said examiners from the FDIC and OCC are cracking down on situations where fees at closing change after the fees have been provided in a good faith estimate. Resolution of discrepancies, however, seem to reward the wrong party.
“When you generate a GFE within three days of application, it is deemed to be a binding GFE,” Oswald Poels explained. “HUD’s opinion is that basically any fee you disclose on that GFE should not have to change from the time of application to the time of closing.
“That means you have to have good conversations with service providers like title companies and appraisers,” she said.
The goofiest part of the arrangement, however, is that the GFE includes owner’s title insurance. In Wisconsin, she said, the borrower ususally doesn’t pay for that.
“It makes no sense, sellers commonly pay for it in Wisconsin,” she said. “But that means you have to know how much that owner’s title policy is at the time you issue a GFE. Most banks are discovering they don’t know so they take an educated guess and it turns out when they start to do their HUD closing documents that the difference in dollar amount throws them out of tolerance by more than 10 percent.” Any amount over 10 percent needs to be refunded by the bank to the borrower, even though the borrower didn’t pay for the title insurance.
“Does this make any sense?” Oswald Poels asked.
The commentary section of NFIB’s monthly analysis of business trends opens with a simple declaration: “Washington still does not get it.” But that’s mere throat clearing. After pointing out how politicians talk about small business’s crucial role in employment, NFIB’s William Dunkleberg and Holly Wade make the following (selected) observations:
“When it comes time to provide help, small business gets $30 billion IF banks decide to accept the TARP funds to support loans and IF the owners can subsequently get a loan from a bank. But for most firms, this dinky amount is of little help…
“…Plans for capital expenditures and inventory investment among small firms are at 35 year lows. Even large bank CEOs now admit loan demand is weak! ‘Stimulus’ for this administration has not focused on supporting consumer spending nor been designed with a sense of urgency…Instead, Congress is focusing on a health care bill that features crippling taxes and mandates for small firms…
“The National Bureau of Economic Research is expected to declare a recession bottom in the second half of 2009…NFIB indicators do not appear to agree however. At the end of the 1982 recession (Q4, 1982), the [Optimism] Index value was 98, the percent of owners viewing that period as a good time to expand was nine percent and the net percent expecting better business conditions was 47 percent. The [most recent Optimism Index] value is 89.3, the percent of owners viewing the current period as a good time to expand is five percent and only a net one percent expect better business conditions in the first half, not really strong signs of a turn in the economy.”
