Commercial banks in New York are anticipating a flood of requests for loans from Manhattan businesses hard hit by the World Trade Center catastrophe. But banks in other parts of the country are bracing for a slowdown in loan demand as the economy inches closer to recession.
Agencies such as the U.S. Small Business Administration, Empire State Development Corp., and a New York City assistance center have been inundated with requests for financial aid from businesses trying to rebuild after the terrorist attacks either destroyed their facilities or shut down their operations.
Banks, too, are pitching in. Atlantic Bank, of Manhattan, is phoning all of its business customers to see what they need, said Anthony J. Morris, director of marketing at $2 billion-asset Atlantic. He said there is no doubt that business customers will require additional financing to shore up their working capital, repair damaged sites, or even relocate.
Many of our customers have been displaced from their facilities that are no longer functioning, Mr. Morris said. There are also still many places where pedestrian traffic is not permitted, and therefore there are no customers. And beyond the hot zone the area surrounding the fallen World Trade Center in lower Manhattan there are tourist areas such as South Street Seaport on the East River that have been greatly impacted. People are just not going out.
Many of the companies affected are bound to file insurance claims, Mr. Morris added, and Atlantic may lend them money to tide them over until their insurance payments arrive.
Valley National Bancorp, the Wayne, N.J., parent of Merchants Bank of New York in Manhattan, also expects an increase in loan demand because of the disaster but not just from customers in lower Manhattan, said Robert Meyer, executive vice president.
There may be many customers in other cities that had conducted business with firms in the World Trade Center, and they may also be impacted, Mr. Meyer said.
For banks in most other areas of the United States, however, commercial loan demand will probably weaken. Commercial loan activity had already been falling off in many parts of the country, according to an economic-conditions report released this week by the 12 Federal Reserve district banks, and the events of the past few days have done nothing to instill confidence.
Several major U.S. airlines have announced massive job cuts this week, and the airplane manufacturer Boeing Co. said Tuesday that it would lay off as many as 30,000 workers by the end of 2002. With employees across all sectors facing uncertain futures, many economists are predicting diminished consumer spending, which is likely to lead to general business contraction.
The Dallas/Fort Worth economy has been fairly stable, but Galen McCune, president of $90 million-asset Northwest Bank in the nearby suburb of Roanoke, said that may change in the wake of Dallas-based American Airlines announcement Wednesday that it was laying off 20,000 people.
This could really affect us, because all of those employees shop at our customers businesses, Mr. McCune said.
Still, a drop in commercial loan demand doesnt necessarily spell disaster for the nations banks, said Campbell K. Chaney, an analyst at Sutro & Co. in San Francisco.
In recessionary times, commercial banks will typically build their bond portfolios instead of chasing loans, and they will actually be able to make a pretty decent spread, he said. Then, when loan demand picks up, they will liquidate their bonds and use the proceeds to fund new loans.
At $190 million-asset Bank of Delmarva in Seaford, Del., president and chief executive officer Edward M. Thomas said that while it is unclear how the economy there may be affected by last weeks events, the bank is preparing for a commercial lending slide.
Theres not a lot of history to fall back on to see what happened to the economy in the past, as theres never been such a damaging attack to civilians by terrorists on United States soil, Mr. Thomas said. As bankers, we all hope the effect on the economy wont be too dramatic, but we just dont know.
In Seattle, where the majority of Boeings plants are located, officials at $2.9 billion-asset Pacific Northwest Bank said that the actual number of layoffs and the resulting impact on the regions economy may be less than what was announced Tuesday.
Economists here say that Tuesdays estimates of 30,000 layoffs are dependent on whether Congress provides substantial assistance to the airline industry, Mr. Fahey said. But even so, the region is much less dependent on Boeing than it used to be, and so any impacts wont be as severe as they could have been in the past.
Outside of that, Pacific Northwest is still fairly optimistic about its commercial loan pipeline, Mr. Fahey said.
We still have a lot of very vibrant businesses here, he said. Were not seeing any panic or pullback on plans people seem to be continuing to move forward with their businesses. They are still in shock about what happened in New York, and we are all mourning the loss, but everyone is determined to not let this get us down.
Further south along the West Coast, Oregon may experience a longer period of downturn than its northern neighbor because its economy was already in a bit of a slump, said Ted Winnowski, president and CEO of Portland-based Centennial Bancorp, the $853.5 million-asset parent of Centennial Bank.
Oregon has been in a mini-recession since last November, and since then we have generally seen clients tighten up on asking for business loans to build inventories, or to hire employees, he said.
However, Mr. Winnowski said that it wont be too long before the Oregon economy bounces back. Theres a lot of pent-up demand from businesses for growth, so I generally feel that things are going to turn around.