By Kevin Dobbs and Marshall Schraibman, SNL Financial staff writers
This much is clear: The nation's big banks are not growing loans substantially.
Fourth-quarter 2013 earnings reports confirmed this, as three of ten major banks analyzed by SNL saw their total loans shrink during the final three months of the year. Of the remaining seven, six grew lending less than 2% quarter over quarter.
The fourth quarter appeared to be a "continuation" of previous quarters, with some banks generating growth by taking market share and many others struggling to bolster lending, D.A. Davidson & Co. analyst Gary Tenner said of the industry in general.
What remains to be seen is whether the U.S. economy will gain momentum in 2014 and help drive greater loan demand from a larger group of credit-worthy customers.
Recent economic reports have been mixed. U.S. employers, for example, added a meager 113,000 jobs in January after an even weaker result the month before. But they generated a more robust 200,000-plus jobs on average between August and November of last year, according to the Department of Labor.
The important manufacturing sector, meanwhile, recently lost ground. The Institute for Supply Management said Feb. 3 that its manufacturing index dipped 5.3 percentage points from the previous month to 51.3 in January.
But housing markets continue to gain traction: The latest S&P/Case-Shiller Home Price Indices showed that home prices in November 2013 rose 13.7% from a year earlier in 20 major markets. Other data released this month showed that new-home starts and new-home sales also recently advanced, while foreclosure filings fell.
"Prices are higher, yet affordability remains attractive relative to history and versus foreign real estate," Jack Ablin, chief investment officer at BMO Private Bank, said in an email. As such, he said, there is room for more home sales activity.
Bank executives provided a range of outlooks during the most recent earnings season, with some optimistic about economic expansion and others decidedly cautious.
BB&T Corp. Chairman, President and CEO Kelly King came down on the more bullish side. While his bank's total loans declined slightly during the last three months of 2013, he told analysts during an earnings call that there were pockets of strength in the fourth quarter—SNL data show quarter-over-quarter growth in multifamily lending and residential construction, for instance—and he envisions a stronger economy boosting operating conditions this year.
"[W]e really believe we are at a pivotal point in the economy," King said. "Admittedly, that's substantially intuitive, but I am meaningfully more positive about where we are and where we're going today than say 90, certainly 120 days ago."
He said a federal budget deal late in 2013 removed one big obstacle from the nation's capital—a steady source of frustration for business owners—and that, while employment numbers were weak at the end of last year, the job market overall has advanced notably over the last several months.
"Psychology matters in situations like this and people have been feeling bad for six years," King added, pointing to the 2008 financial crisis. "There is a natural psychological reaction when you go through a period like that where you just kind of want to feel better, and it doesn't take too much positive news to make you feel better. That's what we're beginning to see."
As confidence builds, he said, investments will be made, creating the need for loans to fund those investments.
"I'm not trying to say it's perfect; I'm not trying to say we've had a 180-degree turn," King said. "But I think we've made a turn and that's a big deal."
Some on Wall Street agree with King. To be sure, the recovery is bumpy and economic data at times raise new concerns, but in recent months, the economy "appears to be accelerating," Ablin said.
As Gary Townsend, CEO of Hill-Townsend Capital LLC, put it to SNL, such a development is paramount. Big banks and lenders in general need stronger economic activity to juice both the need for business investments and the confidence for decision-makers to pull the trigger on them. "Sustained momentum, that's what is needed," he said.
Others sounded somewhat dubious about a big turn for the better this year.
PNC Financial Services Group Inc. CFO Robert Reilly told analysts during a recent earnings call that the economy likely will expand this year but "at a muted pace" with only "modest" growth in lending during the current quarter.
"With that in mind," he said, "we expect full-year revenues to continue to be under some pressure."
Many analysts, too, are cautious. "I still think it's a challenging environment," Tenner told SNL. "There's just not a lot of net new loan growth. So we're not looking for a ramp-up in growth this year."