Dividend increases, acquisitions and loan growth — three things big banks and their shareholders have been longing for — could be in the cards for 2011, chief executives said Tuesday.
The forecasts, given at Goldman Sachs & Co.'s financial services conference in New York, reflect newfound certainty about capital standards and consumer protections. Bank of America Corp., for example, for the first time gave a timetable for raising its quarterly dividend.
But this year's woes — from tepid revenue to souring mortgages — will continue to haunt banks in 2011, even if the problems have stopped getting worse, bankers said. And any loan growth will be modest, as consumers and businesses keep paying down debt.
With capital ratio standards "largely boxed in," Bank of America doesn't "see anything that would stop us" from raising the payout in 2011, pending regulatory approval, its CEO, Brian Moynihan said.
He cited a number of signs that the economy — and banking industry — will continue their gradual return to normalcy next year: A small number of credit-card holders have begun carrying over modestly higher balances; borrowing related to back-to-school sales was down far less this summer than it was last year.
But Moynihan cautioned that mounting legal and staffing costs from the mortgage meltdown could weigh on profits and sap Bank of America's momentum in taking market share from rivals. The company is diverting sales talent to help modify mortgages and handle foreclosure paperwork.
John Stumpf, Wells Fargo & Co.'s CEO, gave a similar outlook to Moynihan's on lending and the dividend, but outlined a slightly different approach to growth.
Bank of America, for the most part, isn't all that interested in acquisitions. But Wells Fargo is open to making purchases to bulk up its wealth, brokerage and retirement businesses, which Stumpf described as "suboptimized."
And whereas Bank of America has been plagued by requests to repurchase troubled loans from the government housing agencies and private investors, Stumpf argued that Wells Fargo's housing problems do not run as deep as those of other banks.
"Most repurchases happen within 24 to 36 months of the origination and if you look at our numbers, we're actually seeing reduced repurchase volume, because the rat's kind of going through the snake," he said. (Moynihan has used similar imagery to describe B of A's repurchase problem on prior occasions.)
Wells is optimistic it can steal loan customers from community banks that are retrenching after overextending themselves before the downturn, Stumpf said.
"I'm not suggesting for a second that we're going to see big-time loan growth as an industry, but I think certain companies will enjoy more growth than others because of the investments they're making," Stumpf said. "We're hiring bankers today. We're putting more feet on the street."
Other speakers were optimistic about the climate for business-related borrowing, which is showing continued signs of thawing.
James Rohr, the CEO of PNC Financial Services Group Inc., said applications for loans and fee-based services in the Pittsburgh company's small-business banking group are up 25% in the past three months. Bookings among clients in its corporate bank are "strong" through early next year, he said. "That makes me feel a little better about the economy."
PNC may make acquisitions in regions where it already has a presence, Rohr said, and his worries for 2011 are out of PNC's hands. "The economy and interest rates are the two things where we really don't have the ability to manage those."
Fifth Third Bancorp's CEO, Kevin Kabat, said the Cincinnati lender is getting a "mixed message" from business borrowers. There is demand among health care, manufacturing and automotive firms. But other corporations are wary of investing even though clients had said they could start drawing down credit lines after the November elections. So far, Kabat said, that hasn't happened.
"We're still uncertain. We don't know where the debt situation for the country goes," he said. "It didn't bring a lot of clarity."