Grant Thorton - The Sixteenth Bank Executive Summary
Financial institution executives across the country are determined to shore up
their foundations and capitalize on strengths to survive the year ahead, despite
massive challenges facing both their industry and the national economy.
In 2009, the U.S. banking industry will undergo a seismic stress test—the result of
which will determine the ultimate viability and resiliency of the nation's financial system.
Few banks will emerge unscathed, yet the very turbulence that will crack the foundations
of some institutions will present others with opportunities to grow—and even thrive.
With these events as a backdrop, Bank Director and Grant Thornton LLP collaborated
once again to produce the 16th Bank Executive Survey, a comprehensive study of
bankers' opinions and plans for the year ahead. The results that follow provide an
assessment of how bank executives are managing the turmoil around them and outline
the strategies they will take in the months to come.
THE OUTLOOK FOR BANKING AND THE ECONOMY
During the first quarter of the year, bankers experienced a flurry of legislative
announcements and federal programs designed to jump-start the economy
and bring about financial stability. In February, the Obama administration
announced the American Recovery and Reinvestment Act of 2009 (ARRA),
which authorized stimulus spending for nearly every industrial sector, and soon
after, publicly detailed its Capital Assistance Program (CAP), which provides
capital funding for qualified institutions. These plans are coexistent with last
fall's Capital Purchase Program (CPP), administered under the $750 billion
Troubled Asset Relief Program (TARP), which provides Treasury-funded infusions
of capital to institutions.
Broadly stated, the government's core philosophy is to offer various
avenues for assistance in improving banks' balance sheets by injecting muchneeded
capital and removing troubled assets. However, the acceptance of
TARP funding also means restrictions on bonuses and incentive compensation,
dividend payouts, and stock buybacks, as well as possible restrictions on
the uses of that capital, such as for M&A transactions. In some cases, banks
that applied for TARP funding initially are rethinking that decision in light
of these considerations, and in the hope that a turnaround will be evident in
the coming months.
Restoring confidence and optimism—A linchpin to stabilizing the markets
will be bolstering consumer confidence, which plummeted in the first
quarter. Moreover, as shown through results of the Bank Executive Survey, it's
not just consumers who have the doldrums.
When the survey asked respondents at the close
of last year about their outlook for 2009, nearly
nine out of 10 bankers (86%) were pessimistic
about the U.S. economy, and more than threequarters
(76%) were pessimistic about the business
of banking. For the second year in a row, both
sets of data represent a significant increase from
the year before, when 56% were pessimistic about
the national economic outlook and 54% were pessimistic
about the national banking outlook. The
results are even more dramatic when compared to
2007 when only 13% were pessimistic about the
economy and 21% held a pessimistic outlook for
the national banking picture.
A renewal of confidence, experts agree, will lay
the groundwork for a positive chain reaction, but so
far, that spark has not ignited."For the first time in
the history of the survey, not a single banker was
highly optimistic about the outlook for the U.S.
economy for 2009, nor the national business outlook
for banking in 2009," says John Ziegelbauer,
national managing partner of Grant Thornton
LLP's Financial Institutions practice. When asked
whether additional leadership is needed in this
area, only 15% agreed that the Federal Reserve is
doing a good job of managing the current crisis and
37% disagreed; 17% think Treasury is handling
the situation well while 46% disagreed with that
position. In a separate question, more than threequarters
(75%) of CEOs polled believed consumer
confidence in the industry has diminished—a key
factor in banks' ability to regain strength and capital
to serve customers in the months ahead.
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