The big concern is still banks’ exposure to commercial real estate, right?
Vaccines are a game-changer, and bank stocks have performed well since Pfizer’s big news on Nov. 9. These are sobering times, and individuals, small businesses and large corporations are struggling. Loan losses for banks won’t peak for another several quarters. We are in the eye of the storm.
So things could still get bad for banks?
We’re far from out of the woods, but loan-to-value ratios are down to around 60%, which implies excess collateral that will limit losses. Thank the regulators again, because this isn’t something the banks would have done on their own. They took the medicine regulators gave them after the 2008 crisis kicking and screaming all the way, but it was good for them. I repeat, give the regulators a raise.
How will regulation change during the Biden administration?
There will certainly be more attention to consumer protection. They’ll act more quickly on enforcement and demand higher penalties. They’ll hold the banking industry to account for the Business Roundtable statement that says companies must think about all stakeholders, not just their shareholders. I think the economic theme for the new administration will be sustainable capitalism.
It feels strange that banks are doing so well when so many are struggling.
During the pandemic banks have been part of the solution, not the problem, like in 2008. They’ve donated money, helped employees, worked out problems for longer with borrowers and generally taken a much more collaborative approach. That said, the industry is only one high-profile failure from being on the front pages again.
What should Jane Fraser do as Citigroup’s CEO?
Do what James Gorman has done at Morgan Stanley and remix the business and geographic footprint. If you’re not strong in something, get out of it, and there should be no sacred cows. It’s time to stop the experiment with this institution that’s been a failure for more than 20 years.
