February 1, 2012

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Banking And Finance

Utah Business Staff

February 1, 2012


DeFRIES: I think it’s both.


BEARD: If you look at the big picture, philosophically we’re really at a crossroads, and you see it in a number of areas. I’ll just take interchange fees, for example. There’s really a philosophical issue here: how much do you want the government involved in the business of the banks? And when you get down to interchange, you’re talking about way down into the trees, looking at a specific item and deciding we’re going to fix this issue.

            When they do that, it reminds me of that whacko game up at Lagoon where you hit something and you don’t know what’s going to pop up. They start putting these odd things in it like an exemption for the $10 billion and below banks. What distortions does that cause? We have a price fix, and then we have these oddities that are starting to get into the system.

            It’s a real crossroads for us. We’re going to go one way or the other on how we’re going to approach regulation. And those things trickle down into the day-to-day activities of each bank.


TAYLOR: We’ll continue to walk through soft ground and sink in some of the mud as we slog through 2012. We’ve got continuing uncertainty, and that’s due in large measure to what is perceived by me and others as an unfriendly congress and presidency to business, as well as uncertainty in the European markets.

            This uncertainty created by financial reform and pending regulations, by Obamacare and the weight that’s going to impose on business, and what’s coming next down the pike—all this uncertainty has caused us to be paralyzed to an extent.

I would also agree that there’s a great deal of pent-up demand and a lot of investment funds and entrepreneurial money sitting on the sidelines waiting for things to get a little better. The election in 2012 has the potential to help us really turn a corner and firm up that ground going forward. So I’m optimistic. We’ll slog through 2012, and in 2013 things will begin to become markedly better.

            Having said that, the federal government has created an environment where the next challenge for banks is earnings. We’ve got the credit problems under control, but now we have an environment where loan demand is weak. If we can’t make loans, our investment portfolios can’t earn very good returns. Underwriting standards have to be meticulous, and it creates a real challenge for us going forward.

PITCHER: Utah is a unique area of the country, and it has the ability to withstand a lot more than a lot of other areas because of the dynamics of the state and the individuals who live within our state.

You have two dynamics: personal and household spending, and then business spending. They seem to be going in different directions, where household spending over the last few months has been strong but probably not sustainable because the discretionary income just isn’t there to support that. When you look at business spending, they have taken a very conservative stance because of the uncertainty in the market.

            Within that, you have small businesses and then you have the higher end of the middle market. And those larger companies that deal on a national basis have downsized, have returned in most cases to profitability. Yet the smaller businesses—which took the biggest hit in this downturn because they didn’t have the capital base to withstand the downturn—they’re the ones who have recovered even more.

            Then you see companies who are struggling with profitability, so they’re buying other companies. The merger and acquisition business is way up. But that doesn’t really benefit the economy; it actually kind of hurts the economy because you cut overhead to get more profitability as a company.


GOLDEN: One of the great barometers in terms of economic activity is usage on credit lines, particularly where they’re working capital related. At our institution, starting in January ‘09 we saw a steady stair step down in usage on credit lines. That tailed off about October of that year. It was flat for about a year and then began to pick up in the fall of ‘10 and since then has steadily increased, albeit not robustly. That’s the curve we’ve seen in terms of credit line usage, and we sense that’s a clear indicator of economic activity.

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