Bank of America Corp.'s commercial-banking unit saw a surge in new clients after the failure of several regional lenders roiled the industry, and the lender is planning to bulk up staffing to keep up with demand.
The division, which serves one in five U.S. companies that generate $50 million to $2 billion in annual revenue, got a 55% increase in new clients in May from a year earlier, according to global head Wendy Stewart. That momentum is expected to continue, with the unit on track to report 50% growth in customer additions for all of 2023, she said, up from a 35% increase in new relationships last year.
"Commercial banking is historically a slow and steady business, but this year has been an exception because of disruption in the banking sector," Stewart said in an interview at the firm's One Bryant Park office in New York. Since March, when SVB Financial Group's Silicon Valley Bank and Signature Bank collapsed into receivership, companies are "wondering what's going on with their banks, asking broadly who they can trust and how stable the sector will be going forward."
That created an increase in activity for Bank of America, the second-largest U.S. bank, whose commercial clients are 80% closely held companies, with the rest publicly traded. To help meet the growth in demand, the Charlotte, North Carolina-based lender will add workers at its commercial unit, including hiring senior bankers from outside firms, said Stewart, who oversees more than 2,000 staffers.
The mix of internal and external hires will be gradual, with activity expected to ramp up over several years, she said.
Amid signs of a slowing U.S. economy and fears of a potential recession, commercial clients remain in "wait-and-see mode" in terms of investments and hiring, Stewart said. In that environment, lending has started to slow after a period of steady growth through April.
Last year, Bank of America's commercial unit reported a 9% increase in loan volume. Lending was "up and down in May," Stewart said, though demand for revolving credit is rising as companies seek working capital for day-to-day operations.
Global commercial banking is one of the eight divisions at Bank of America, which has more than $3 trillion in assets and provides companies across a range of industries with lending, risk management and other services. Almost a third of Fortune 1,000 companies are among the lender's commercial-banking clients, according to the firm. The unit's revenue increased 25% last year, while net income was up 29%.
Stewart, one of the most senior female bankers at Bank of America, was promoted to president of global commercial banking in 2021, when she was also added to the executive management team that reports to Chief Executive Officer Brian Moynihan. Her division has a presence in more than 100 cities across the U.S.
One area of stress for Bank of America's corporate clients is commercial real estate, which has been hurt as companies re-evaluate their office footprints for a post-pandemic, hybrid-work environment. That's causing stress for many banks as interest rates rise and defaults increase. Bank of America, for its part, has tailored its commercial-lending book to avoid properties most at risk, Stewart said.
In the wake of the global financial crisis, Bank of America shifted its commercial real estate book away from office and into industrial properties, to match where it saw economic activity moving. Today, the firm's main real estate lending focus is spread among industrial, affordable housing and multifamily developments, Stewart said, helping insulate Bank of America from potential defaults in the office sector.
Commercial real estate "is going to be more concerning for the regional banks," whose loan portfolios are more heavily concentrated in office properties, Stewart said. Those loans are even more potentially troublesome with interest rates high, making refinancing costlier, she said.
Still, Stewart takes no pleasure in regional banks' troubles, even as her company benefits from them. Bank of America was among the U.S. financial giants to inject $30 billion in deposits into First Republic Bank in a failed attempt to keep the regional lender afloat. The San Francisco-banked firm was ultimately seized by regulators and sold to JPMorgan Chase & Co., the only U.S. lender larger than Bank of America."We need regional players strong and stable," Stewart said, "for the ecosystem to work."
