CEOs Still in Black Mood Regarding the Economy

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PLANO, Texas-Credit union executives are still in a black mood about the economy, according to the Southwest Corporate CEO Confidence Survey for the first quarter.

Two economists say the CEOs have good reason to be pessimistic. But another sees reason to be guardedly optimistic.

The survey of 1,300 credit union CEOs found the general confidence level rising slightly from the fourth quarter's dire 11.21, but still at a very negative level-just 14.91 for the first quarter in the survey that asks CEOs to rate their confidence on a 1-100 scale. In comparison, the confidence index slumped to its lowest, just 7.90 in the fourth quarter of 2009, and rose above 40 in 2005 and 2006. Projections for the financial conditions of members and individual credit unions, both now and in six months, rose slightly from the fourth quarter doldrums, but still are very low, according to the survey.

The CEOs continued to predict low loan demand and high share growth, as members continue their deleveraging, the quarterly survey found. What's reported in the Southwest survey is similar to credit union confidence reflected in the latest NAFCU economic report, noted NAFCU chief economist Tun Wai. "And I would include myself in the same camp in terms of expectations; certainly on the lending side."

According to NAFCU's report, problems remain with new car loans but used cars are strong. "The unsecured component we see as slightly negative to neutral," Wai said. "But the real estate component that was very negative at the start of the year is improving slightly, and savings are back to zero."

Reasons For A Guarded Outlook

CUNA VP-Econimcs & Statistics Mike Schenk sees reasons for a guarded outlook, however. "Based on past performance, CEOs certainly have plenty of reasons for a low mood. However, we do see signs of things picking up. At CUNA, we expect a rebound in credit union loan balance growth in the next two years-up to as much by 4% for 2011, and 6% in 2012," said Schenk. "Auto loans, credit card loans and purchase mortgage loans will likely be strong growth areas. And ROA will recover, to 0.6% (up from 0.4% in '10). Lower loan loss provisions, rising net interest margins, and cost containment efforts will boost earnings. We expect NCUA assessments to come in at 20 and 15 basis points of average assets in 2011 and 2012, respectively. We don't expect a significant drop in interchange income in 2011, but possibly a 10-basis-point-hit in 2012."

Bill Handel, VP of research and development for the Lombard, Ill.-based Raddon Financial Group, attributed the bleak outlook in part to a tough housing market. "The southwest still has some pretty significant issues with foreclosure shadow inventory. The big banks hold a lot of that paper and they don't want to take the hit one time. They will bleed this inventory out slowly, therefore it will take the southwest a little longer to recover than other parts of the country."

Not everyone aggress. Wayne Vann, CEO of the $1.1-billion Navy Army FCU, Corpus Christi, Texas, said the south Texas economy is sound. "I think this is one of the best places to be. We are very stable. We anticipate our credit union's loan growth this year will be in the 12% to 15% range, and deposit growth is robust. We expect ROA to come in at 2% (pre-assessment) this year."

A Differet Story For Other Regions

But Handel and Wai shared a very different outlook for the rest of the country. "There are so many shocks to the economy that are occurring now in terms of prices for commodities, like food and oil, and I think with the deficit that the government's ability to respond will be limited," observed Handel. "It will be a choppy recovery and this year will not be as strong as people had hoped. Whatever growth we get in the first quarter may be our strongest of the year."

Wai sees a "tepid I economy for a while. I am projecting 3.4% GDP growth in 2011 and 3.5% in 2012. You need a heck of a lot of growth to bring down unemployment-at least 5% to 6% growth annually to drop unemployment 1%, and I don't see us getting there."

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