The lending business is looking sluggish for the year ahead, according to Goldman Sachs & Co.
Borrowing demand is only "moderate," according to the investment firm's survey of chief executives. The survey also found that Chase Manhattan Corp., after the merger with perennial leader Chemical Banking Corp., has become the dominant player among banks in raising money for corporations.
In the survey, conducted twice a year, the number of respondents who said they would increase borrowing was only 4% higher than the number who said they would decrease borrowing. In April the gap was much wider, with 17% more CFOs saying they expect to increase borrowing.
At that time, corporate financial officers expected the economy to strengthen and showed preferences toward re-leveraging, said Robert Albertson, author of the survey.
Since the last survey was taken, credit spreads for "general corporate purpose borrowing" declined to 66 basis points from 97 points, consistent with declining credit demand.
Chase Manhattan was identified by 42% of the respondents as a "primary relationship bank." BankAmerica was named primary relationship bank by 28% of the respondents.
First Chicago NBD maintained a strong relationship with 26% of the respondents. Citicorp, which has shifted its emphasis from domestic to international syndications, was named by 26% - off from 37%. NationsBank was named by 22% of the respondents, while J.P. Morgan had an 18% share.
Many banks' market shares have declined in the past year, because the average number of primary relationships per respondent declined to 2.5, from 3.2 a year ago.
The survey was taken against a backdrop of brighter economic conditions. In addition, banks have resolved to regulate themselves more carefully than in past business cycles, industry observers said.
"Banks have avoided excesses of the past, and nipped potential problems in the bud,"said Joseph Liro, chief economist at CIBC Wood Gundy. "If the behavior continues, expansion can continue."
He said one reason borrowing from banks may decline is that more firms are generating their own funds through private placement and corporate investment programs.
As banks "lose market share from the loan business, the Federal Reserve is trying to level the playing field in other areas, by taking off the shackles" that limit their investment banking activities, Mr. Liro said.
"Still," he added, "as the number of banks is shrinking and banks are looking to run other types of businesses, there is a lot of relationship banking in the small and mid-market companies."
