Three midsize banks from different parts of the country said Wednesday that corporate lending had thawed last quarter even as more home builders and retailers had trouble making real estate loan payments.
That dynamic illustrates the deep challenge all three institutions — M&T Bank Corp. in Buffalo, N.Y.; Comerica Inc. in Dallas and Marshall & Ilsley Corp. in Milwaukee — will have in expanding loans so long as the housing and commercial property markets suffer.
"We have seen some more problems there, particularly related to retail," said Elizabeth S. Acton, Comerica's chief financial officer. "We've seen a little stress there."
Comerica and M&T reported similar business loan issues, though M&T operates on the East Coast and Comerica's issues were mostly in western states. Flashes of demand were in contrast to resurgent property-related losses. M&I, meanwhile, lost $200 million in the chargeoff of a loan to a long-suffering hospitality company, despite M&I's granting easier loan terms last year.
M&I said it will now shy away from renegotiating real estate-related business loans because the anemic economy has killed the chances of rehabilitating troubled ones.
"The likelihood of any type of successful outcome … is greatly diminished," said Greg Smith, the chief financial officer of the $52 billion-asset company. "It makes us more [reluctant] to pursue renegotiated loans."
That single chargeoff helped drive M&I to a net loss of $169.2 million in the third quarter. M&T earned $192 million, and Comerica earned $59 million. Loan books shrank at all three companies, though at a slower pace than in previous quarters.
M&T and Comerica saw favorable trends in commercial and industrial lending, the type of debt used for equipment purchases or plant expansions. Both said demand began rising slightly last quarter, particularly in September.
"We think we're making great progress," said Rene Jones, chief financial officer of M&T, which has $68.2 billion of assets and more than 750 branches. "Utilization of the credit we are extending is down," he said. "The actual commitments that we've extended [are] up."
This indicates that small and midsize transportation businesses, metal-working shops and other businesses in its markets may be getting ready to borrow and spend again, he said.
At Comerica, the utilization rate of its commercial loans ticked up for the first time in about six months as it issued more credit to mortgage financiers, car dealers and energy businesses.
Acton saw "glimmers of hope" that business loan demand is on the rise. "They will turn into something. How much and when" loan demand comes back is not clear, she said. "Our customers are still very cautious."
Though C&I lending may be rebounding, commercial real estate remains "lumpy," she said.
Growing problems with property developers pushed overdue loans at both M&T and Comerica up slightly after a second-quarter decline. Comerica said mall builders in its markets had a hard time finding tenants and home builders could not sell properties.
That resulted in commercial property loan losses of $60 million in the quarter, nearly double the prior quarter's level. The dollar amount of new property loans that stopped accruing interest in the quarter more than quadrupled, to $132 million.
At M&T, a handful of troubled home construction-related loans it acquired in buying another bank stopped accruing interest. The Buffalo company had already written down the credits, so it will not lose money on them.