1950

London Bank Televises Files from Remote Site

LONDON, May 25 — The Glyn Mills Bank has installed a television receiver in which it can view, in a matter of seconds, a customer's balance sheet on file at the bank's business office 12 miles outside the city.

Also, the bank's manager will be able to have any document in the bank's out-of-town underground vault held up to the TV screen so he can study it.

This TV system, the first privately owned in Britain, and the first in the world to be so used by a bank, was inspired by the distant location of the bank's files which were moved to the country for safety's sake during the war-time bombing.

1989

Moment of Truth for Banks and Thrifts

WASHINGTON, Dec. 26 — When bankers and industry analysts talk about 1990, there is remarkable consensus: Banks and thrifts must become leaner, faster, and tougher. Many will not make it through the year.

Already thin interest margins will grow thinner, and upticks in nonperforming real estate loans will affect more banks — mainly regionals, according to some of banking's best thinkers. At the same time, the industry will be preoccupied again with credit quality and consolidation, they say.

Indeed, after a decade of remarkable change and upheaval in banking, industry watchers believe that in 1990 the rift between winners and losers will widen quickly.

"There will be a vicious cycle," said H. Rodgin Cohen, a leading bank attorney with Sullivan & Cromwell. "There is a desperate need to consolidate in the industry to improve performance. But that will be more difficult because of a decline in market prices at many institutions."

On top of that, regulators will grow aggressively risk averse, pressuring institutions both earlier and more often to change high-stakes habits and raise capital. Mergers, both voluntary and involuntary, of banks and thrifts will realign industry power and force some dramatic restructuring.

In simplest terms, observers say, the institutions most likely to prosper are still those that truly know how to make and manage a loan. "Overcapacity of credit is about to hit home," warns Lowell Bryan, banking consultant with McKinsey & Co. "If you haven't been following good lending techniques, if you got carried away, you will be the subject of takeovers and forced recapitalization."

"The pressure to keep increasing bank earnings has perverse effects," said John D. Hawke, a former general counsel at the Federal Reserve Board. "No one is forcing banks to take in money. They can turn off the inflow."

The decade of the 1980s is littered with the remains of once heralded lending institutions: Continental Illinois, Mellon Bank, First Republic, Bank of Boston, and many others fell on hard times by unfortunate lending decisions. In more drastic terms, an entire thrift industry was bailed out by U.S. taxpayers after an uncontrolled lending spree, and as many as half the remaining S&Ls may soon cease to exist.

New powerhouses are emerging, including Banc One Corp., NCNB Corp., Bankers Trust New York Corp., Wells Fargo & Co., and Avantor Financial Corp.

"With the earth shifting beneath the entire financial institutions industry, when the dust settles we'll see who has the best underwriting standards," said Bruce Harting, an analyst at Salomon Brothers Inc.

"Banking is moving to thinner margins, and permanently thinner margins," warns banking consultant Edward Furash, who sees too many bankers without a strategy and in search of an industry role model.

One of the lending industry's most quality-conscious bankers, John G. Medlin Jr. of First Wachovia Corp., says the "dire pessimists in 1990 will be wrong again" but he does expect less industry growth next year. "Margins still will be under pressure from competition, keeping loan rates down and competition for deposits nudging those costs up," said the chairman and chief executive of the North Carolina-based banking company.

The need to control operating costs will drive more banks to in-market mergers, said Mr. Medlin, because of the difficulty of surviving independently, maintaining modern technology, and keeping critical size.

Underlying many concerns for 1990 is the slowing U.S. economy. While interest rates are likely to continue to fall through at least the first half of the year — with a prime rate near 9.5% by summer — loan demand is not expected to revive significantly.

Operating Profits Will Suffer

U.S. banks' operating profits in 1990 are likely to be moderate at best, hurt by slim margins, a spreading deterioration in real estate values, and lack of Brazilian interest payments. The slowing economy will mean fewer chances to earn fees in financing leveraged buyouts, and Brazil will probably not pay interest on its $15.6 billion U.S. bank debt all year. In 1989 it paid about half its interest bill.

According to Merrill Lynch analysts, real estate lending continues to represent the greatest hidden risk for the industry "as problem loan recognition has yet to stabilize generally, and given fears that deteriorating market conditions have room to spread to heretofore healthy markets" — including the Middle Atlantic States and California.

Lawrence W. Cohn, senior banking analyst at Drexel Burnham Lambert Inc., believes next year will prove better in earnings for money-center banks than regionals. "Regionals will have more of a problem with asset quality, and declining interest rates will have a more positive impact on money centers," he said. But most money centers remain so weak in capital that he does not see any geographic expansion. "They cannot afford to do anything."

Also, several money centers remain underreserved against possible losses on LDC loans. Citicorp, for one, may increase its reserves in the fourth quarter of 1989, he suggested. Chemical Bank and Manufacturers Hanover Trust Co. remain underreserved and will have to make additions, "but they have done what they will do for a year or two."

More commercial banks will re-enter the mortgage business next year, Mr. Cohn predicts. "The basic mortgage product is a lot more profitable today, absent the unrealistic competition from the thrift industry. The spreads are better."

On the regulatory front, banking experts see a strong trend toward risk containment. Bank and thrift regulators — still wincing from the 1989 thrift bailout and wary of yet another S&L rescue — are eager to prevent problems that might cause systemic losses.

"The thrift industry problem is leading to reregulation for everybody," Mr. Cohn observed. "I see regulators moving more quickly to intervene in problem situations to avoid what they had in Texas when banks were really insolvent by the time regulators moved on them," said Mr. Hawke, a senior partner at Arnold & Porter.

Mr. Furash suggests that starting next year the consolidation of the bank and thrift industry will speed up, and force all banks to make some tough strategic decisions. "More and more, managers will have to view banks as a series of business portfolios. Some portfolios they should be in more, and some not at all. To the casual observer, the scene will be chaotic. Bankers will wonder why some banks are getting out of a business when others are making money in it."

The real watershed in 1990, Mr. Furash argues, is when bankers realize they have to run their institutions in their own way. "It's been easy so far to find successful role models in the industry and copy them. You can't do that now."

Next: The banking committees of Congress will remain preoccupied with the thrift crisis next year.

1912

National Credit Bureau

July 27 — Very naturally the proposition made at the recent Brighton Beach, N.Y., conference of State and National bank examiners for the formation of a National association of State and National bank examiners is looked upon with distrust in many quarters. The main purpose of such an organization would be the exchange of information about the loans and credit of individuals and firms.

This idea involves the extension to the entire country of the system now adopted by the New York State Superintendent of Banking, under which credit information is regularly collected and recorded. The possession of confidential information by a State superintendent may not affect the standing of any individual or firm, but the general exchange of this information would work serious detriment to the credit and standing of any concern, and this is the reason why the proposal for the establishment of a National credit bureau is viewed with distrust in so many quarters.

The practical co-operation between State and National bank examiners was first suggested a year ago, and it was upon this initiative that the New York State Superintendent, George C. Van Tuyl, Jr., instituted the credit bureau in the State Banking Department, which will serve as the model for the National bureau if it is established. Ultimately it is proposed that a bureau similar to that in New York shall be created in every State.

Of course all the information collected by the State bureau is turned over to the National bank examiners in New York City, so that the latter are kept fully informed of the status of all the large borrowers. To this extent no objection is urged against the credit bureau, but when this boundary is exceeded and the information is widely disseminated, then the firms whose operations are widely heralded are alarmed about the effect which such a situation might have upon their credit. They see no way by which the operations of a National Credit Bureau may be relegated so that they will be secure against the possible damage that may be done to their business. The improper use of the so-called credit information against which there is said to be no security, makes the general body of business firms by which loans are made instinctively hostile to the new scheme.