Executives with some of the country's largest banks said Monday they see signs that lending markets are thawing, though consumers and businesses remain reluctant to borrow.

Top officials of Bank of America Corp., Wells Fargo & Co., M&T Bank Corp., KeyCorp and other companies said corporate loans are running off the books at a lower rate this year after declining sharply through the downturn. Lending has also improved in a few areas such as student and automotive lending.

Still, they warned demand is likely to remain depressed as long as the economy stays fragile.

"Unemployment holds back everything we do, from consumer spending to the housing market," said Brian Moynihan, the chief executive of Bank of America, at an investment conference in San Francisco sponsored by its Merrill Lynch unit. "Private employers tell us that they are simply not confident enough in the future to begin hiring new workers in meaningful numbers."

Moynihan was among several high-ranking bank officials to give a mixed outlook on the state of the loan markets at two high-profile conferences Monday.

Howard I. Atkins, senior executive vice president and chief financial officer of Wells Fargo, said things aren't all bad on the lending front for the San Francisco company.

Total loans are shrinking because of soft demand and the runoff of risky loans like mortgages with flexible payment plans, he said at a Barclays Capital financial services conference in New York. Wells Fargo acquired a huge portfolio of those types of loans in its purchase of Wachovia Corp. in 2008.

Loan losses appear to have peaked in the third quarter of 2009, Atkins said. That means Wells Fargo could keep releasing capital set aside to absorb losses. Though demand is soft across most lending segments, some portfolios grew last quarter, he said. Those include: auto loans, student loans, commercial business loans and asset-based loans.

Wells Fargo is bullish on home lending. Its total loans would have grown, instead of contracting, had it not sold off as many of the mortgages it originated last quarter, he said. Historically low mortgage rates could spur a wave of refinancings, Atkins said. Wells Fargo is positioned to benefit with 6,400 branches across the country, he said. "So this could be a big development. … We originate one out of every four mortgages in the U.S," he said.

Moynihan, meanwhile, said demand is "flattish" to "slightly down" in business lending. In normal times, corporate borrowers on average draw down 40% of their credit lines. Right now, they're using 30% to 35%, he said. "But that hasn't deteriorated a lot."

Businesses aren't selling a lot of products, but they're making a "good profit" by being efficient, he said. Even with the cheap cost of borrowing, "they don't need to borrow from us," he said.

Business borrowers are waiting for sales to surge and the economy to stabilize. They're wary about federal regulatory reforms and reluctant to hire because they "don't want to reduce head count again."

Consumers are not clamoring for loans either, Moynihan said. Creditworthy borrowers are holding steady. The Charlotte company expects to charge off and run off more consumer loans than it originates "over the next several quarters," he said.

Rene Jones, executive vice president and CFO of M&T in Buffalo, N.Y., described an ugly lending market: demand is tepid and competition is fierce, pressuring prices. It could get worse if demand doesn't pick up, he said at the Barclays conference. "Pricing pressure is going to tick up steadily over the next several quarters," Jones said. "You've now got record capital in the industry, but you have no loan demand, and that makes for competition." Commercial loan margins are falling as banks aggressively go after the few creditworthy borrowers, he said.

"Your pricing is not that different from where it was in the third quarter of 2007," Jones said. "For us it's one of the reasons that the loan growth is slow, because we are certainly not willing to do that." Jones said there are some signs demand could resume in commercial lending. The rate of decline in commercial and industrial loan balances "seems to be tapering off a bit." Also, growth in deposits from commercial customers is slowing. He said you'd expect to see a "turnaround" in lending as corporations save less cash and start making investments.

Beth Mooney, vice chair and head of community banking at KeyCorp in Cleveland, said that corporate America has "garnered liquidity" while reducing debt. Though "the rate of decline may be stabilizing, we're not clearly at a point where new business volume is starting to exceed runoff."

Richard Fairbank, the chairman and CEO of Capital One Financial Corp. of McLean, Va., said making gains in lending has been tough. "Each month we feel more traction with originations and we're pushing on the string a little bit less, but overall demand remains weak," he said at the Barclays conference. "We're seeing a dramatic pullback by consumers. They're deleveraging. … A disappointment to our economy is that they're not doing a lot of spending. … We have to be careful what we wish for because consumer conservatism is allowing credit … to improve faster than the economy is."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.