Coronavirus fears dampen mood at community bankers' conference
ORLANDO, Fla. — The coronavirus outbreak and the related free fall of oil and stock prices have taken concern to new levels among bankers closest to Main Street.
Heightened tensions were palpable at the Independent Community Bankers of America’s annual convention. While attendance seems on par with last year, many bankers have opted for waves over handshakes, and the smell of hand sanitizer wafted in the air throughout the venue.
“We really just don’t know how long this will hang on, how bad it could get and how much it will hurt the economy,” said Bill Wubben, chairman and president of Apple River State Bank in Apple River, Ill.
Commercial loan demand had leveled off earlier this year, and the $363 million-asset Apple River is bracing for additional pullback should coronavirus fears rattle consumer and business owner confidence.
Read more: Complete coverage of the coronavirus impact
“There’s just a lot of uncertainty,” Wubben said.
Mike Edwards, CEO of the $939 million-asset Marquette Savings Bank in Erie, Pa., agreed.
“We’re in unchartered waters,” Edwards said. “I think we’re all concerned now about a possible recession.”
Edwards said he is worried that conditions could significantly worsen if upbeat consumers, who had bolstered the economy in recent years, take on “a sense of panic.”
Stock markets plunged Monday as falling oil prices became the latest shock to investors.
“And with the markets, I think everyone is watching their 401(k)s nervously,” Edwards added.
Industry observers are accounting for the mounting risks, notably the impact of sharply lower interest rates. Federal Reserve policymakers last week slashed their benchmark rate by 50 basis points in a move that it sure to pinch margins and cut into net interest income.
Piper Sandler analysts, for example, trimmed earnings estimates for several banks in recent days and said their 2020 outlook for the industry had quickly soured.
Entering 2020, with rates already low, net interest income, revenue and EPS growth “all seemed likely to log their weakest performances in the past several years,” the Piper team wrote.
“That was before the coronavirus plunged the globe into a new state of uncertainty, plugging a slew of new headwinds into the equation,” the analysts added. “Whereas we previously thought flat earnings would be a decent year for the group, that prior aspiration could prove a pipe dream.”
Analysts have already started to scrutinize banks with exposure to restaurants, travel, hospitality and energy. Now, with supply chains threatened by coronavirus, banks that lend to manufacturers may also grapple with new challenges. Pullbacks in those areas could hinder overall loan growth, and a protracted fallout could push more borrowers into stress, driving up loan losses.
Confirmed cases of coronavirus, globally, exceeded 100,000 early this week, with known deaths topping 3,000. The virus is spreading quickly in the U.S., spanning more than two dozen states.
While lower interest rates bring down borrowing costs — increasing demand for mortgage and commercial loan refinancing — and infuse liquidity into the financial system, bankers said they worried that fiscal policy could prove inadequate if the coronavirus takes root in major metropolitan areas, forcing office and business closures.
“A fear of what’s unknown, that’s real right now,” said Mike Estes, president of the $131 million-asset Fisher National Bank in Fisher, Ill. “If this goes on long enough, it could take its toll on a whole range of things.”
Rebeca Romero Rainey, the ICBA's president and chief executive, struck an upbeat tone about the year ahead in her address, noting efforts to remove obstacles to cannabis banking and plans to advance Bank Secrecy Act reform, among other priorities.
But she acknowledged the unease imposed by coronavirus and anxious investors.
“It really seems a little bit surreal,” she said.