TOM HUDSON: The Federal Reserve`s effort to jump-start the economy has been concentrated on making sure banks have plenty of money to lend. But more than half the banks surveyed recently by the Federal Reserve say demand for commercial loans has not changed that much in the past quarter and a quarter say loan demand has actually dropped. I recently spoke with Ian Ratner, principal at GlassRatner, a financial advisory firm that works with banks and began by asking if banks are in good shape to make loans.
IAN RATNER, PRINCIPAL, GLASSRATNER: I think that there are a number of banks that have very strong balance sheets and they are in position to make loans and I think they would like to make loans to credit-worthy borrowers.
HUDSON: Credit-worthy borrowers is the key phrase, the phrase that pays here because match up the credit-worthiness out there of borrowers and the demand for loans. Are they matching up?
RATNER: I don`t think they match up. The banks may want to make loans, but there are a lot of borrowers that are just not in position to take on more credit and also the banks lending standards have increased significantly.
HUDSON: You talk about loan demand. We spoke with the CEOs of the 13th largest bank, BB&T and the 148th largest bank in the U.S., First Busey based in central Illinois. I want you to hear what they had to say recently about loan demand. Here they are.
KELLY KING, CHMN. & CEO, BB&T: I believe you`ll see a material increase in loan demand. I believe it will come in small businesses. I think it will come in large businesses. I believe consumers will be more confident.
VAN DUKEMAN, CEO, FIRST BUSEY: We`ve seen a little bit of a pickup. It starts with the bigger companies. We have companies in down-state Illinois like the world headquarters of Caterpillar. We`ve seen them start to hire.
HUDSON: A little bit of a pick up begins with confidence in hiring. Are bank CEOs just optimistic that loan demands will be coming back soon?
RATNER: Personally, I think they`re a little bit optimistic. I think there`s a couple of reasons why we wouldn`t see that much of a pickup. Number one is again, the borrowers may not be in a position to take on more debt. And frankly, we`ve had a lot of borrower clients who have spent the last four, five years cleaning up their balance sheet, reworking bank deals and they`re just not anxious to re-lever at the same pace that they were in the past.
HUDSON: They don`t want to take on new debts at this point?
HUDSON: Talk to us about the overall market here when it comes to the banks` willingness and ability to lend because we`ve seen the residential housing market implode and what that has meant for bank balance sheets. What about the commercial lending market and commercial mortgages?
RATNER: I think the commercial real estate business is in a lot of trouble. And not only at the bank level, but also in the CMBS market, which is the commercial mortgage-backed securities. And today, some 10 percent of these commercial mortgages are in default. So a lot of the banks have some very disastrous commercial real estate on their balance sheet.
HUDSON: Is 10 percent a significant number historically?
RATNER: It is mind-numbing. It is really mind numbing. We`re talking about close to $100 billion of real estate in default.
HUDSON: So a couple of years after the financial implosion and the financial industry almost came to a standstill, can you say with confidence in your position working with banks big and small, that banking is more stable today than it was two or three years ago?
RATNER: I think many of the banks that have cleaned up their balance sheet and have worked through their distressed credit are in strong shape. But I do believe there are many small banks and community banks and medium- sized banks that really are in trouble and perhaps don`t have the wherewithal to work through all their troubles.
HUDSON: Ian, we appreciate the insight. Thanks for sharing with us.
RATNER: Thank you.
HUDSON: Ian Ratner along with us. He`s with the financial advisory firm GlassRatner.