Tag Archive for Loans

What’s behind the sudden improvement in US loan growth?

Credit growth in the US seems to have stabilized and may be on the rise. It’s worth mentioning that the bottom in loan growth just happened to correspond to the start of Fed’s taper. Coincidence?

Total loan growth rate YoY

Whatever the case, this may be a sign of improving demand for credit and banks’ willingness to accommodate. The key to this change in trend is that improvements in loan growth have been primarily driven by a sudden jump in corporate lending.

Corporate loan growth rate YoY

Why is corporate America increasing its borrowing all of a sudden? The most likely answer is the improvement in capital expenditures – as evidenced by firmer capital goods spending by companies. We saw initial signs of that improvement back in February (see story). There were other indications as well. ISI’s latest corporate survey provides further support to this thesis.

ISI Research: – Survey strengthened over the past two weeks with U.S. orders now a solid 61.5. Areas of strength include equipment tied to trucks, rail, aerospace, and construction.

Whether using their massive cash reserves or tapping bank credit facilities (increasing bank loan balances), the time has come for higher capital expenditures by US companies. Here is why.

Barron’s: – Capital expenditures [have been] just 46% of operating cash flow for nonfinancial companies in the S&P 500. The average since 1989 is 57%. Capex can’t remain low forever. Already, the average age of U.S. structures is the highest it has been since 1964. Equipment hasn’t been this old since 1995, and intellectual-property products, like software, since 1983. In a report issued this past week, Bank of America Merrill Lynch predicts U.S. capex growth will more than double over two years, to 5.7% in 2015, from 2.6% last year. Beyond mounting cash and aging plants and equipment, it cites some new factors. Economic growth is picking up, giving business managers more confidence and less spare capacity. Congress even passed a budget this year—one less thing for business leaders to worry about.

Barron’s goes on to say that many shareholders are now pushing firms to increase capital expenditures. Much of the capex spending behavior in the post-recession era has been driven by uncertainty. Recently in the US we’ve had two major sources of such uncertainty: the Fed’s taper and the federal government budget/debt ceiling. Both of these macro risks frightened corporate management enough to hold back on capex. The Fed’s taper however is now on a slow, fairly predictable “autopilot” and as Barron’s points out, the budget deal removed the risk of a near-term federal impasse. As far as corporate CEO’s are concerned, the major uncertainties related to the US federal government have clearly receded – for now.

Thus the similarities in timing of the bottoming of loan growth in the US and the start of Fed’s taper may not be a coincidence after all.

SoberLook.com

From our sponsor:

www.SoberLook.com

Americans Sees Biggest Home Equity Jump in 60 Years: Mortgages – Bloomberg

Home equity in the first quarter rose to $6.7 trillion, the highest level since 2008, as homeowners taking advantage of record-low borrowing costs to refinance their loans brought cash to the table to pay down principal. The 7.3 percent gain was the biggest jump in more than 60 years, according to an analysis by Bloomberg…

Jamie Dimon Welcomes You to the Next Financial Crisis | Marketplace.org

While lawmakers were ostensibly asking Dimon how to prevent the next, distant financial crisis, he was openly telling them that JP Morgan had predicted, to the tune of $100 billion, that we’re hurtling towards one this year. In his least-challenged, least-questioned statement, Dimon explained the intent and strategy of JP Morgan’s “London Whale” trade –…

EU Smiled While Spain’s Banks Cooked the Books, and Now We’re Surprised?

…back in 2008 and early 2009, Spanish regulators were riding high after their country’s banks seemed to have dodged the financial crisis with minimal losses. A big reason for their success, the regulators said, was an accounting technique called dynamic provisioning. By this, they meant that Spain’s banks had set aside rainy- day loan-loss reserves…

Markets Get a ‘Spailout’? It’s No Bailout for Spain – CNBC

European officials shouldn’t be surprised if their latest unveiling—a rescue plan for Spain’s troubled banks—fails yet again to impress markets or resolve the continent’s crisis. After all, whatever the package of up to €100 billion in loans might do to calm fears about Spain’s banks for the time being, it may only increase concerns about…