January 15, 2014

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Banking and Finance

January 15, 2014

HOWELL: Not before the next election. I mean, can you do it before the election?

It would be very hard.

CAMARELLA: There’s still an awful lot of cash, and it’s still sitting on the side, and everybody continues in a stall position. I feel like a car with a stick shift, and you just keep kind of back and forth, because with every good news, with every incentive to move forward, there is another challenge. Right now, between Obamacare, where interest rates are going, just the fear factor, between distrust and apathy with the government—the situation has the potential to be really, really—I don’t want to say “catastrophic.” We just keep putting on Band-Aids. At some point we have to really put in remedial action and stop the Band-Aids.

When you said cash on the sidelines, I’m assuming you’re talking about the fact that corporations have more cash sitting on their balance sheets than they’ve had historically, and they don’t seem to be investing that in new plants and equipment or job-generating investments. Why do you think they’re not?

CAMARELLA: We’re still not sure exactly where the government’s taking this country.

LUIKART: Across our portfolio of commercial banking customers, what they’re looking at are the uncertainties that keep them from doing the things you’re suggesting. Healthcare is one of the things they’re not real certain about. Another is what taxes will look like. And the other piece would be regulation. We think, as bankers, that we have a lot of regulation, but each industry has regulation, along with the uncertainly of all that.

So we find ourselves lending money for the working capital growth, which, at 2.5, 2.8 percent, you’re going to get some growth. It’s not huge. It’s not enough to hire a bunch of people, but it’s enough to at least look forward to building your working capital. We also fund a lot of acquisitions. But we’re finding very little in the sense of equipment purchases or building expansion and that kind of thing because of the uncertainty that business owners have on their minds today.

PACKARD: Businesses and consumers have become very reliant on low interest rates. We’re talking mortgages at 3 percent, 4 percent, and to think that they normalize themselves at 6 and 7 and 8 percent—it just would be disastrous what effect that would have on the economy. We’ve grown very accustomed to those low rates, at the expense of the saver.

The government likewise has become very accustomed to low interest rates. When they’re borrowing from us, or the public, and the U.S. Treasury’s at such low, historic rates, if you were to double that, it would have such a dramatic effect on the deficit. That would just balloon the deficit even more. So I see that as a looming problem out there that I don’t know the solution to.

Over the last few years we’ve seen the amount of consumer debt start to level or fall a little bit, at least per capita. But it looks like that may have turned. Do you think that consumers are in a position where they’re ready to start consuming again?

 

PACKARD: The memory of most consumers is very short-lived, and a lot of them have been through some very difficult times. But as you move past those difficult times, they become more comfortable to where I think we can start to do some things, and there is some movement to see them grow a little bit.

BEARD: The underlying fundamentals of the world economy are fairly sound, and it seems to be strengthening. We have pockets like China that were really on fire that seem to be slowing down, and in the big picture, that’s a good thing. The fundamentals in the U.S. are pretty solid. The fact that there’s so much intermixing of politics and the economy—there always has been—but more so than ever with the deficit and so forth, the uncertainty does impact businesspeople, starting with our own management teams all the way through our customers. Until they get this figured out, it’s going to create that.

Everyone cries about the regulatory burden, and I appreciated the comment that it’s not just banks. We have a little branch down in Boulder, Utah. And even in Boulder, the regulation on the cattle industry and the things that are going on stifle the economy. We’ve got to come to grips with that at some point. It’s a very difficult system that we’re in, and the layers of probably good-intentioned regulation inhibit the natural flow of business.

PIGNANELLI: Our sector continues to do well. All the banks do very well. What is happening is all this capital’s being held by these companies and corporations. There’s a real desire to put that into the marketplace, but whether it’s Dodd-Frank or the inability of FDIC to approve anything beyond their lunch menu, it’s causing problems.

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