March 28, 2024

DealBook: Banks Start to Make More Loans

Despite all the bleak economic news, a funny thing has been happening in the financial industry over the last few months: the banks have quietly turned on the lending spigot.

Loan growth is still modest. And it remains heavily weighted toward the strongest corporate and consumer borrowers. But after several quarters of having their loan balances plunge or flatten out, several of the nation’s biggest banks are reporting increases.

On Monday, Citigroup officials said the bank recorded loan growth, compared with a year ago, in almost every one of its businesses during the third quarter, and in almost every corner of the globe. Wells Fargo executives said new loan commitments to small businesses were up 8 percent, while lending to bigger companies has been growing for 14 months in a row. Across the industry, analysts expect credit card loan balances will start increasing before the end of the year.

“The narrative that banks aren’t lending is incorrect,” Timothy J. Sloan, Wells Fargo’s chief financial officer, said in an interview. “Lending is strong, and based on what we’re seeing,” he added, it will “continue to grow.”

Still, the stocks of both banks, and the sector as a whole, dropped on Monday as the sluggish economy and revenue figures pointed to broad drags on the banks, including low returns on making loans and exposure to the European debt crisis.

But the new lending numbers suggest that while the economy remains extremely fragile, the confidence of consumers and businesses may be more resilient than many experts had believed. “It hasn’t really strengthened, but it looks like the recovery is still here,” Jamie Dimon, JPMorgan Chase’s chairman and chief executive, said after heralding his bank’s lending data last week.

There are myriad explanations behind the uptick in loan growth, including more customers taking advantage of ultra-low interest rates and borrowers in need of cash drawing on their credit lines. Others believe the downbeat headlines in recent weeks have been overblown. If the confidence clouds hanging over Europe and the United States were removed, the lending figures would be even stronger, analysts and bankers say.

Housing remains the banking industry’s Achilles’ heel. Mortgage and home equity loans have fallen more than 6.2 percent since their peak in late 2007 and early 2008, according to weekly data from the Federal Reserve. Most banks have ratcheted up the underwriting criteria so that fewer new borrowers qualify for a loan, especially in the housing markets along the coasts that were hit hard by the recession. As existing loans end, they are less likely to replace them with a new one.

But there has been a modest increase in lending elsewhere. Over all, corporate lending has rebounded 7.2 percent after bottoming out in October 2010. Consumer lending, with the exception of housing-related loans, turned positive during the second quarter and has been gradually increasing since then, the data show. All told, total loan balances are near where they stood in mid-2007.

“The banks want to lend,” said Gerard Cassidy, a longtime banking analyst at RBC Capital Markets. After all, he said, more than 70 percent of their income is tied to that activity. And the Federal Reserve survey of loan officers shows that banks have been gradually relaxing their underwriting requirements.

Others, however, say the banks are still clinging to their purse strings. For a broader recovery, they will need to make loans more available to more consumer borrowers with blemished credit histories and a broader array of small businesses, the critics say.

“I don’t think the lending window is open near enough to what you need to see to get the economy growing, businesses expanding, and to bring the unemployment rate down,” said Bernard Baumohl, the chief global economist at the Economic Outlook Group, a forecasting firm.

So far, the revival in lending has not been strong enough to significantly move the revenue needle for the nation’s biggest banks, either. The poor performance of their Wall Street-related businesses and the elimination of once-lucrative overdraft and credit card penalty fees have weighed on their results. Meanwhile, the rise in new loan volume has not been enough to offset the lower profit margins on new loans as a result of the Fed’s decision to keep interest rates close to zero until at least 2013.

On Monday, Citigroup reported that its core revenue fell 8 percent, even as it squeezed out a $3.8 billion profit with some favorable accounting. It booked a $1.9 billion paper gain since the cost of retiring its debt had, theoretically, declined because of concerns over its financial condition. It also delivered about $1.4 billion to its bottom line, using money it had previously set aside to cover credit card and other loan losses. Together, those moves accounted for more than 60 percent of its pretax earnings.

Wells Fargo also reported a 6 percent drop in revenue, as several major divisions, like its vast mortgage operations and its investment banking businesses, reported a decline from last year.

But the bank still managed a record $4.1 billion profit, thanks in part to a sharp reduction in charge-offs and the release of $800 million in loan loss reserves.

But buried in the numbers of both big banks were signs that loan growth was modestly improving. Citigroup pointed to healthy demand in emerging markets, which have only recently started to feel the impact of the global slowdown.

In Asia, for example, corporate loans grew 22 percent, while card lending increased by about 4 percent, excluding the impact of the exchange rate. Citi’s Latin American operations showed similar resilience, while even the North American business showed a slight increase in lending, with the exception of mortgages.

Much of it is not “forced lending” as borrowers tap credit lines because they are in desperate need of money to pay their bills, Citi executives said. Small-business customers are “drawing them down because they have real needs and we are extending additional commitments,” said John C. Gerspach, Citigroup’s chief financial officer. “Absent the continued uncertainty, you would likely have loans growing and the economy growing at a faster rate.”

Executives at Wells Fargo, whose giant lending operations are largely focused on consumer and corporate borrowers in the United States, said that “customer sentiment is good” even though some of the economic data worsened during the third quarter. “It’s not just energy or commercial real estate; it’s really across the board,” said Mr. Sloan, the chief financial officer at Wells Fargo.

Some of the growth was due to foreign lenders ceding some ground to Wells and other large American banks, rather than an overall increase in demand. The uptick in Wells Fargo’s commercial lending business was aided, in part, by a $1.1 billion commercial real estate portfolio it bought from the Bank of Ireland. Even its mortgage business, which reported more than a 50 percent jump in home loan applications, owed some of the lending growth to consumers refinancing existing loans — not people obtaining new ones.

On Thursday, Mr. Dimon was keen to highlight JPMorgan’s lending numbers in an otherwise sobering quarter. Lending to small businesses with less than $50 million in revenue was up 70 percent through this year compared with the same period in 2010, while lending to middle-market customers was up 18 percent.

“These are pretty powerful numbers,” Mr. Dimon said on a conference call with journalists. “We look at loan growth translating to jobs.”

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ESPN Extends Deal With N.F.L. for $15 Billion

At $1.9 billion a year, ESPN will be paying 73 percent more than the $1.1 billion a year it has been spending for “Monday Night,” the highest rated program on cable television. ESPN began carrying Monday night games in 2006 when its previous package of Sunday night games moved to NBC.

But when ESPN made that earlier deal, which will expire in 2013, it received no playoff games and no chance of carrying a Super Bowl, which is rotated among CBS, NBC and Fox. All ESPN had were the rights to carry 17 regular-season games a year.

The new deal provides a path to adding a wild-card playoff game on the network by providing the league with an option to give one to ESPN — which would appear to mean taking one away from another network.

How that develops will probably be part of the continuing negotiations with CBS, Fox and NBC, which will be under pressure to retain their N.F.L. rights, at possibly steep fee increases, during a sluggish economy.

ESPN’s agreement will allow it to further secure its role as the cable channel with more N.F.L. content than any other except for the NFL Network. Under the contract, ESPN will expand its use of video highlights and add 500 new hours of league-branded studio shows almost immediately, including adding a third hour to the Sunday program “NFL Countdown,” which will now start at 10 a.m., Eastern time.

The daily “NFL Live” program will expand from a half-hour to 60 minutes. The deal will also let ESPN stream its N.F.L. programming to Verizon cellphones. Tablet users will be able to see “Monday Night” games and other league programs by using the WatchESPN app.

“The value of the N.F.L. to us is the ubiquity of the sport across our platforms all the time,” said John Skipper, the executive vice president for content for ESPN. “It’s just stupendous for us. It’s daily product — we don’t have a day without the N.F.L.”

He called the new deal, even at a much higher cost, “fiscally prudent for us” and one that “we will be able to absorb and continue to grow.”

For ESPN, the length of the deal, eight years, is advantageous because it will span a period when it will renegotiate all of its deals with cable, satellite and telephone companies — which will almost certainly lead to subscriber fees exceeding the more than the estimated $4.50 a month that ESPN now charges.

In a conference call, George Bodenheimer, the president of ESPN, said there would not be a specific “N.F.L. surcharge” added to subscriber fees. But, he added: “No portion of any of our fees is associated with any product. Our fees are based on the value of our products.”

Neal Pilson, a sports industry consultant, said ESPN’s $1.9 billion annual payment was affordable in cable economics.

“Hypothetically,” he wrote in an e-mail, “if you say 50 cents or one dollar (or more) of the $4.50 monthly sub fee is attributed to the N.F.L. on ESPN (and push that forward to support future increases in sub fees), you can easily justify the rights fee given all the programming and content ESPN will be carrying.”

At $15.2 billion for eight years of N.F.L. rights, ESPN’s contract greatly exceeds the size of recent deals like CBS and Turner’s $10.8 billion agreement to carry the N.C.A.A. men’s basketball tournament for 14 years and NBC Universal’s $4.38 billion investment in the four Olympics from 2014 to 2020.

ESPN made losing bids for the N.C.A.A. and Olympic contracts, perhaps signaling that the deal it really wanted was the N.F.L. extension.

“We do not have a more important deal than the N.F.L.,” Skipper said.

The league’s next TV deal might be for a second Thursday night package of games to augment the one that is now carried by the NFL Network. But the creation, and sale, of a second such collection of eight games is not imminent. Goodell said, “It’s not likely we will do it in the next year.”

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A Nosedive Eases a Bit in Volatile U.S. Trading

European debt troubles and signs of a sluggish economy in the United States have unsettled investors for months, and Thursday was no different. Stocks fell sharply early, pushing the Dow Jones industrial average down nearly 2 percent before it rallied on new hopes for a Greek austerity plan.

The seesaw session and small drop in stocks at the close pointed to generally gloomy investors hopping from headline to headline as they sought clarity. The volatility also signals further fluctuations in sentiment, with stocks headed for an unclear direction on Friday. After posting losses for six of the last seven weeks, the Standard Poor’s 500-stock index was showing a weekly gain of nearly 1 percent at Thursday’s close. It has fallen just nearly 6 percent since the end of April.

“The Greece situation has been a threatening dark cloud hanging over the markets,” said Lawrence R. Creatura, portfolio manager at Federated Investors.

“We are in uncertain times, everybody knows it and that creates volatility, but also opportunity.”

The Dow Jones industrial average fell 59.67 points, or 0.49 percent, to 12,050 on Thursday. The S. P. 500 declined 3.64 points, or 0.28 percent, to 1,283.50, and the Nasdaq composite index rose 17.56 points, or 0.66 percent, to 2,686.75.

Greek debt problems have battered markets for weeks with concerns about contagion to other countries in the euro zone and its effect on banks.

At the same time, the latest economic data has served as reminders of the challenges to the United States economy, including a slowdown in hiring in May and a housing sector that is still trying to recover.

The seesaw in stocks started shortly after the open, when the Dow, less than two hours into trading, fell 234.73 points, or 1.9 percent, to its intraday low of 11,874.94.

Analysts offered a range of reasons for the slump, starting with the Federal Reserve saying on Wednesday that the economy was not expanding as quickly as predicted and that it would complete the purchase of $600 billion in Treasury securities next week, then pause.

Late Wednesday, Jean-Claude Trichet, president of the European Central Bank, said that the link between the Greek debt problem and banks was “the most serious threat” to financial stability in the European Union, according to Bloomberg News.

On Thursday, the Labor Department said initial claims for unemployment were up 9,000, to 429,000 last week, according to seasonally adjusted figures. The four-week moving average was unchanged at 426,000.

Stanley A. Nabi, the chief strategist at Silvercrest Asset Management Group, said the debt troubles in Europe were only one of the factors affecting the market on Thursday. “I think the decline is substantially connected to the Fed having lowered economic expectations for the next several quarters,” he said. “And then the employment data that came out this morning was not particularly robust.”

Adding to the uncertainty, some analysts said, was the International Energy Agency announcement that the United States would provide half of the 60 million barrels of petroleum reserves being released to world markets, with other nations releasing the rest. The action is meant to replace some of the oil production lost because of the conflict in Libya.

“It shocked the market,” said Doug Cote, the chief market strategist for ING Investment Management. “This looks like thinly veiled stimulus,” he said. “The big question weighing on the market is why now?”

But other analysts said the oil announcement suggested consumers could get relief at the gas pump, and that mostly sovereign debt and economic issues, including the faltering United States federal budget talks, were to blame for pushing stocks lower.

News at the end of the day that Greece had reached some approval for austerity measures helped the indexes recover.

“It was kind of a rocky ride over the last hour,” said Stephen J. Carl, head equity trader at the Williams Capital Group.

“It was almost an 11th-hour save,” said Mr. Creatura.

European markets were down. The FTSE 100 in London fell 1.71 percent on Thursday, while the CAC 40 in Paris declined 2.16 percent and the DAX index in Germany dropped 1.77 percent.

“Investors are worried about the same things that have been worrying them for some months,” said Adrian Darley, head of European equities at Ignis Asset Management in London. “It’s the weak U.S. data, a consensus of overheating in China and concerns about Europe. The Greek situation is still unsolved and markets are going to remain very nervous.”

The Treasury’s 10-year note rose 18/32, to 101 26/32. The yield fell to 2.91 percent, from 2.98 percent late Wednesday.

Energy and bank stocks in the were down nearly 2 percent. Airline stocks, sensitive to oil prices, rose. Exxon Mobil was down 1.73 percent, to $78.44. Chevron fell 1.69 percent, to $99.36. Marathon Oil declined 2.22 percent, to $51.62.

Julia Werdigier contributed reporting from London.

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