Bank Conference Takeaways
Industry leaders voice optimism for the future.
Industry leaders expressed optimism for the future during Raymond James’ sixth annual Bank Conference, held September 7 in Chicago.
More than 200 representatives from 89 banks attended the conference, with 27 institutions participating in presentations during the exclusive, invitation-only event. Raymond James hosted panel discussions with industry leaders on energy lending, non-energy credit and mergers and acquisitions. Also, our research team surveyed members of 49% of the banks in attendance to gauge their sentiment on a variety of topics.
These were the key takeaways:
The Federal Open Market Committee (FOMC) continues to indicate it would like to return to a normal interest rate structure, yet has not increased its lending rate in 2016. Many conference attendees indicated an increase prior to 2017 would be a welcome surprise, yet more than half indicated their internal budgeting does not reflect a rate hike. The expectation is interest rates will remain near historic lows for quite some time. A possible December increase, for which odds have increased, likely would result in an increase in net interest margins similar to what occurred early in 2016, after the Fed raised the rate 25 basis points in December 2015.
Mergers and acquisitions
While mergers and acquisitions activity is slower in 2016 than in recent years, it has picked up. Indeed, 2016 is on pace to be the fifth strongest among the past 25 years, with 1998 ranked first and 2015 second. Most banks surveyed had completed at least one acquisition in recent years, and expected to pursue future opportunities. Many identified challenges such as increased regulatory requirements and costs, fatigue on the part of leadership, a diminished growth outlook and decreased profitability as incentives to sell.
Many bank executives maintained a positive outlook for loan growth, targeting increases in the mid-single digits despite a recent softening in activity. Many identified the areas of commercial and industrial (C&I) and commercial real estate (CRE) as providing the most opportunity for growth, while indirect auto and multifamily residential were sources of concern.
Some company leaders considered asset quality trends to be relatively benign, but expressed some cause for caution. While the short- to intermediate-term outlook calls for relative stability, some noted concern over the prolonged duration of the economic recovery, more than six years and counting, as well as multifamily, indirect auto and, in certain areas of the country, CRE.
Many among banks with exposure to the energy sector indicated there remains cause for concern, but generally were optimistic given the recent stabilization of oil prices. As a whole, they remained dedicated to the energy space, but with varying strategies and approaches. They indicated new energy credits generally depict higher pricing, improved structure and longer hedging. Oil exposure, however, remains a concern, given their view that service companies will require higher crude prices to assert pricing leverage.
In conclusion, the sixth annual Raymond James Bank Conference provided a unique opportunity for industry leaders to connect and share insights. The prevailing sentiment among those in attendance was optimism.
We look forward to a thought-provoking agenda when this event is held again in September 2017.
According to a survey of 49% of banks attending the Raymond James 2016 Bank Conference: