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CEO Jon Winick Featured in American Banker-12/13/17

Community bankers’ grim reality: This is the new normal

Published December 13 2017, 1:21pm EST

Community bankers seem to expect a lump of coal for the holidays.

The industry has a lot going for it. National unemployment is low, hovering around 4% in October, according to the Bureau of Labor Statistics. Third-quarter banking profits rose more than 5% from a year earlier, based on data from the Federal Deposit Insurance Corp. Bank stocks are up by double digits this year.

Still, bankers have a grim outlook for 2018. Several factors are at work, ranging from concerns over lackluster loan demand and low yields, rising deposit prices and competition and persistent regulatory burden.

In short, bankers are finally adjusting to the industry’s new normal.

“Even though the economy seems a little bit better there’s still a lot of issues out there in the market,” said Tim Scholten, founder of Visible Progress, a consulting firm. “I don’t think things are necessarily as great as what sometimes it feels like it should be. It’s a different world than what we’re used to.”

For the first time in its nearly three-year history, a banker confidence index from Promontory Interfinancial Network remained below 50 for two straight quarters, indicating pessimism among respondents. The index, which is based on a scale of up to 100 points, tracks views on access to capital, loan demand, funding costs and deposit competition.

“Why aren’t bankers more confident?” said Paul Weinstein, a Promontory senior adviser. “We’re trying to figure that out. There are lots of potential possibilities. It could just be the initial exuberance that some had with what they thought would happen in Washington has faded.”

Muted enthusiasm is likely being influenced by customers’ reactions, said Jon Winick, CEO of Clark Street Capital. For instance, many banks are chasing commercial-and-industrial credits at a time when borrower demand is below many bankers’ expectations.

Total C&I loans on Sept. 30 were flat on a linked-quarter basis, according to FDIC data.

Almost 51% of the bankers surveyed by Promontory said current loan demand had moderately or significantly improved from a year earlier. About the same percentage expected demand to rise in the next 12 months.

Bankers often assert that businesses are waiting for certainty, such as last year’s presidential election or tax reform, before deciding to borrow and make investments.

Winick questioned that logic, postulating that potential borrowers may have become more debt-averse since the financial crisis. Others may simply have enough cash on hand to fund their operations.

“I don’t buy that a trucking company in suburban Chicago is holding off on buying new trucks because it is waiting to see what Washington does,” he said.

Concerns over regulatory issues could also be forcing some banks to pass on certain loans, said Trent Fleming at Trent Fleming Consulting. Overall, “a downward creep” in regulation makes lending more difficult for banks, he said.

“I’m little bit pessimistic myself just from the regulatory burden,” Fleming said. “In our industry, the burden of regulation is the single biggest drag on what’s going on. Bankers have been hoping for relief.”

Deposit competition and the possibility of higher funding costs was another concern. About 64% of respondents to the Promontory survey said deposit competition had increased over the past 12 months. About 57% of bankers felt that way in the second quarter.

Nearly 90% of the survey’s participants expect funding costs to rise.

“The price for deposits has gone up, while the loan pricing hasn’t changed all that much,” Scholten said. “It is creating added pressures on margins.”

Deposit competition is on the rise as banks with at least $50 billion in assets look to comply with rules tied to their liquidity coverage ratios, said Ciaran McMullan, president and CEO of Suncrest Bank in Visalia, Calif.

While optimistic about his $529 million-asset bank’s operations, McMullen said he understands why other may have a gloomier outlook.

“I think bankers have always been a bit pessimistic,” McMullan said. “There are plenty of bankers that remember staring at the ceiling at night wondering how they would get out of the fix they were in during the crisis. … It’s hard to shake that.”

The survey, which was conducted during the first half of October, took place before some important developments for banks. Tax reform has since progressed in Congress, and Richard Cordray stepped down as director of the Consumer Financial Protection Bureau.

“If tax reform happens that will probably change the needle a lot,” Winick said. “After the election things haven’t happened as fast as people had wanted. But there are a lot of very encouraging changes, so this [pessimism] could be short term in nature.”

Clark Street Capital Featured in SNL-12/1/17

Wells Fargo CEO to face investors amid drawn-out, mounting woe Exclusive

Friday, December 01, 2017 10:43 AM CT
By  Kevin Dobbs

Regulatory scrutiny of Wells Fargo & Co. could escalate as the bank continues to grapple with fraudulent sales tactics, putting its chief executive in a precarious position as he prepares to meet with investors.

Wells President and CEO Timothy Sloan — who has spent the past year trying to resolve extensive problems that range from phony deposit accounts to blunders in Wells’ auto-insurance and mortgage operations — is scheduled to address investors Dec. 5 at a Goldman Sachs conference in New York.

Sloan was promoted to the San Francisco-based bank’s top job shortly after former CEO John Stumpf stepped down in the wake of regulators, in September 2016, fining the bank and alleging that it had allowed employees to open millions of accounts without customers’ permission. Regulators said retail staffers worked in a pressure-cooker environment to meet exceptionally high sales goals.

Sloan has since tried to win back the trust of customers, investors and regulators. During his tenure as CEO, the bank has made changes to its board, fired managers linked to improprieties and reshaped the ways it motivates employees.

But a cloud of scandal continues to hang over the bank, and regulators reportedly are ramping up their scrutiny. That development could further damage Wells’ reputation at a time when the bank is struggling to attract new customers and grow revenue, observers say.

That in turn would worry investors, said Jon Winick, president of bank advisory Clark Street Capital.

“It is remarkable that it’s taking them so long to deal with this,” Winick said in an interview. “What else is there for regulators to find? That’s what everyone is going to ask.”

Wells has acknowledged that its staffers opened up to 3.5 million fake accounts. In its community bank division, where those bogus sales occurred, net income fell in the third quarter, as did Wells’ overall revenue.

Wells also has reported a range of other problems. These include wrongly charging hundreds of thousands of auto loan borrowers for insurance and unjustly charging some mortgage customers fees to extend interest rate commitments.

At issue now: The Office of the Comptroller of the Currency has cautioned Wells that it is considering a formal enforcement action against the bank over the auto-insurance and mortgage issues, according to a Wall Street Journal report. Such an action would involve ordering the bank to correct problems within a set time period, and with that, regulators would bolster their inspections of Wells’ operations, said Kevin Jacques, the finance chair at Baldwin Wallace University.

Heightened supervision would increase the likelihood of regulators unearthing additional problems, and it would surely consume precious time that Wells managers would otherwise devote to growing the business, said Jacques, who spent a decade from the late 1980s to the late 1990s working on risk management matters for the OCC.

“It is much more than a negative headline,” Jacques said in an interview. “When the OCC takes action, it means they are ratcheting up the steps they are taking against a bank, and that kind of progression is exactly what Wells Fargo does not want to see happen.”

According to the Journal report, which cited people familiar with the matter, the OCC wrote a letter to Wells in November accusing it of willingly hurting the auto and mortgage customers and, additionally, of repeatedly failing to address problems in an array of other areas. Also, this week the Journal separately reported that some business clients in Wells’ foreign-exchange operation were overcharged, though the bank disputed that report.

“At Wells, like at all the really big banks, there is a team of regulators onsite year-round,” Jacques said. “If there is an enforcement action, you can be sure it means that onsite team is really digging in, trying to get ahead of problems rather than responding to them.”

Should substantial new problems emerge, pressure on Sloan could mount. When he was promoted from COO to CEO last year, Wells emphasized that Sloan was not responsible for the division in which the sales scandal erupted. But, with problems widening, it could become increasingly difficult for the 30-year company veteran to avoid blame.

Winick said it “could take years for somebody from the outside to get up to speed” as a new CEO, given Wells’ size and complexity. But he also said that, if Wells’ problems worsen, critics may demand a change in leadership and push the bank to look outside for a turnaround expert.

“It is very disappointing, this continuous drip, drip of problems,” Winick said.

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