The “age” of Donald Trump as president has begun. What are lenders to make of it?
Will this be a golden era after years of “irrational exuberance” followed by a major recession and near-collapse of the banking system?
Are we too tentative and cautious about the outlook for business to capitalize on our current environment?
At the start of a new administration, there is always uncertainty. Do we make some moves now, or do we hang back?
It’s always about taxes (read “money”), it seems
I was a youngster in the business when LBJ was president and I recall the transitions to Presidents Nixon, Ford, Carter, Reagan, the Bushes, Clinton, and Obama. If there has been a frequent refrain of concern, it’s been federal income taxation.
Once again we face considerable uncertainty about federal income taxes and this year particularly, taxation figures very prominently in the economic outlook for profits and growth.
But this really isn’t anything new, although the expectation of tax cuts for business is certainly stronger now than I can remember in any of the prior transitional times. I guess I’d say that for the first time in memory, federal income taxes seem more of an opportunity than a problem for business.
The presidential campaign of 2016 created new issues and made others more prominent. Perhaps the biggest “noise maker” in our political discourse today concerns our attitude toward income distribution and the distinction between the “haves” and the “have nots.”
This in turn has led to a coarsening of our national conversation to the point where the term “alternative facts” has crept into our vocabulary. Unhappily, this is resulting in unnecessary friction and mutual distrust. This helps no one and neither elevates the level of discourse nor determines outcomes in any constructive way.
So, will Trump be good for business, and our business?
Still, something feels very different this year compared to the others.
For the first time in a great many years we have a man heading our government whose adult working experiences are entirely in the private sector with no government experience whatsoever.
President Trump is a businessman and it’s reflected in the way he thinks and acts. This holds the potential for real change, both for good or ill, but on balance, people seem to coalesce around the idea that his leadership will be beneficial for business.
Perhaps our attention to this issue should be centered on the degree of likely benefit rather than whether there will be a net plus or a net minus to our collective expectations.
We’ve been cautious—understandably—in recent years.
Some questions to ponder:
• Might the next few years be more optimistic relative to our expectations of only a few months ago?
• What might the outlook be for our various lending product suites?
• Do we have a business plan in place that can accommodate the significant upside potential of what is certainly possible for the first time in several years?
Is too much caution a brake on opportunity?
A banker’s perspective on the opportunities ahead will likely be shaped by the size of his or her institution. A community bank can hardly go on a lending spree independent of local market conditions. On the other hand, a mega bank could generate substantial increases in loan volume through a relatively small number of commercial lending opportunities.
But virtually anywhere on the size spectrum, it’s my educated guess that banks, their directors, managers, and cadres of lenders, are underestimating what the market may be offering in terms of new business potential.
If I were a community or regional bank CEO, I’d be gearing up for a new business push for loans with a view to significantly increasing my market share.
Ultimately, the size of the pie will expand for all. But those who are at the starting line early have an opportunity to lead the parade rather than simply follow it.
What would I be doing if I still ran a bank? Some ideas:
1. Get the word out. I’d start now figuring out several different, but complementary, advertising campaigns designed to be sure that my customer constituency becomes fully aware of my bank’s support of local business.
2. Put the word in context. I’d have an economic development flavor to my advertising as the rationale for an increased emphasis on lending.
3. Explore nondeposit funding options. I’d be exploring liquidity and funding options, perhaps including expanding Federal funds lines and FHLB borrowings.
4. Reexamine the deposit base. I’d also want to be sure that I have a strategy to retain the deposits that have flowed in since rates dropped nearly to zero for lack of attractive investment or saving alternatives. Liquidity and conservatively priced funding considerations may well be the near-to-intermediate term consequence of an embarrassment of riches on the lending side of the house.
5. Get your lenders ready to lend actively again. The idea that bankers are salesmen is not necessarily a popular notion, particularly in recent months where the market is aware of bank customers having been “sold” products and services unrelated to the best needs of their businesses.
Instead we need to be training staffs in terms of product knowledge and attitude to help our borrowers succeed. This means bringing customers access to information, access to funding, and access to a constructive and sympathetic “ear.”
Get ready for a long-term commitment
It’s time to be ready to enhance our borrowing customer relationships. Ours is a relationship business and attention only to a transaction builds a portfolio but not a bank. We have what may prove to be a remarkable and dramatic opportunity.
But we have to be smart and prepare for the long haul. We are running a marathon—not a sprint.
Certainly there are risks. This is an environment of uncertainty in many important areas and uncertainty creates hesitancy and doubt.
But we have been trained to lend money prudently. In a real sense, this may be the moment that we have been preparing for.
It’s also an opportunity to reclaim our rightful place as respected practitioners of an ancient business and a way to propel us beyond the dross of our recent past.
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