Stephen Friedman projects accelerated loan growth in 2012 at ACG “State of the Capital Markets” Event
Stephen Friedman, Sr. Vice President of Regents Bank projected accelerated loan growth in 2012 when he spoke as a panelist at ACG’s “State of the Capital Markets” program recently held at the Lodge at Torrey Pines. The event was co-sponsored by Regents Bank.
There were over 75 attendees comprised of leaders in the San Diego finance and investment community. ACG San Diego is a local chapter of an international organization with over 12,000 members worldwide. The organization’s motto is “It is the place where deal makers meet.”
The focus of the event was the state of the capital markets. Stephen’s focus on the panel was the state of the senior debt markets and expectations for lending activity in 2012 in general, and more specifically in San Diego. His expectations for 2012 were for increased lending activity in 2012 with anticipated overall loan growth of between 5-10%. His conclusions were supported by an analysis of the current health of the banking industry, recent lending trends, changes to the banking landscape, as well as from primary information gathered from a survey he conducted of financial leaders in the San Diego market.
Specific analysis to support increased loan growth were as follows:
- The financial health of the banking industry has improved significantly over the last two years, with key banking metrics such as return on assets, return on equity and the percentage of bad loans nearing levels that would be considered normalized. While key banking metrics currently are not quite as robust as before the financial crisis. Stephen stressed that today’s metrics are more valid because they are directionally improving and have been scrubbed rigorously by regulators, auditors and management for years now, while pre-bust metrics clearly had greater imbedded risk than was evident at the time.
- Loan to deposit ratios have declined steadily since 2005, meaning that more of the bank’s deposits are not being lent out into the marketplace, which has hurt bank earnings and is putting pressure on bank management teams to find opportunities to lend.
- The local banking market has been radically transformed through the failure and acquisition of the weaker competitors, which have been replaced by over a dozen new competitors in the market, all well-armed with fresh capital, strong balance sheets and mandates to grow.
- An analysis of historical lending activities shows that loan growth is picking up pace, particularly in the area of Commercial & Industrial (C&I) loans, which comprises basic business lending. In 2011 C&I lending was the only loan category that reported growth nationally with a strong uptick of over 14%. This is an extremely positive indicator for healthy businesses that are looking for financing to support their growth.
- Stephen concluded by citing a survey of local commercial bankers and investment bankers he personally conducted. The results were fairly uniform in support of continued and accelerated loan growth in 2012, particularly in the areas of C&I lending and owner/user commercial real estate.
The other panelists each focused on other tranches of capital, including mezzanine financing, “unitranche” financing and private equity. All participants echoed the message that the capital markets are flush with liquidity and that competition for companies with growth prospects is heating up, driving up purchase multiples, which in turn is bringing more sellers to the table.
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