Regions' explanation for tepid commercial lending: We're being careful
Regions Financial in Birmingham, Ala., is in fast-growing Southeast markets like Nashville, Tenn., Tampa, Fla., and Atlanta. But with adjusted loan growth of 1% in the second quarter and a similarly modest outlook for the rest of the year, CEO John Turner had to answer a basic question Thursday: What gives?
“We don't have to grow a lot to achieve all of our financial objectives,” the CEO of the $125 billion-asset bank said, responding to an analyst’s query at the Barclays Financial Services Conference in New York. “We know the opportunity is present, but we're not competing on rate, we're not competing on terms, and we think it's really important during this period of time to emphasize that as part of the culture that we're continuing to build and create a sound risk management.”
Regions booked about $9 billion in new commercial loans over the first half of the year but lost out on another $5.6 billion in wholesale business simply because it wasn’t willing to compromise too much on price or loan terms, Turner said.
It was perhaps an appropriate question, given the recent 10th anniversary of the financial crisis. In his answer to the analyst, Turner alluded to the prolonged recovery and said, “Who’s to know when the economy may turn?”
The chief financial officer, David Turner, also pointed to other examples where Regions has tried to minimize its exposure to certain lines of business. It is treading cautiously in commercial real estate in some hot markets, and it is shifting from construction lending to term lending in some places.
David Turner also took a moment to reflect, when an analyst asked him to reassess Regions’ 2012 sale of its investment banking unit Morgan Keegan.
Regions sold Morgan Keegan to Raymond James and used the cash it netted from the sale to help pay back the remaining $3.5 billion it owed under the Troubled Asset Relief Program.
“We still had Tarp, we needed to simplify our business, we needed to raise capital in the cheapest form we could because we didn't want to dilute our shareholders any more than we had to. Morgan Keegan also had a series of litigation issues that we were dealing with,” David Turner said.
David Turner, who has been CFO since 2010, called it “the right thing to do,” even if it meant that Regions had to rebuild its investment banking business.
Regions has also been winning business among younger generations, John Turner said. He estimated that roughly 45% of all new accounts are opened by people who are 30 years old or younger.
“While we have a very solid loyal customer base, we are also appealing to the younger crowd and that's where we see our future growth opportunities,” John Turner said.