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U.S. regional banks delve deeper into advisory services to boost growth

U.S. regional banks delve deeper into advisory services to boost growth
From Reuters - November 30, 2017

(Reuters) - Squeezed by lower loan growth as interest rates finally begin to rise, regional U.S. banks have been giving more financial advice to mid-sized companies and affluent Americans to drive revenue growth.

Smaller banks, like their bigger Wall Street rivals, have aggressively cut costs since the 2008 financial crisis and trusted ultra-low interest rates to increase loan volumes.

But with the Federal Reserves overnight funding rate now rising, albeit slowly, U.S. bank lending growth slowed to 3.5 percent at the end of the third quarter from 6.8 percent a year earlier - the slowest growth since 2013.

That has driven banks to seek new sources of revenue growth at a time when they are still cutting staffing and investment.

Experts say that investment banking and wealth management are far less capital intensive for the regional lenders and piggy-back easily on the tight relationships they tend to have with local companies and customers.

The field is very crowded, but having a local presence is helpful to us, SunTrust Robinson Humphrey Chief Executive John Gregg told Reuters. While the big guys will say they are focused on middle markets thats not their bread and butter.

Fifth Third Bancorp Chief Financial Officer Tayfun Tuzun told Reuters that he was not seeking to compete with Morgan Stanley, Goldman Sachs or other Wall Street firms who dominate major deals and firms.

But he said that the bank had $55 billion to $60 billion in loans to a large base of middle market clients who might have revenue running from $20 million to $500 million and are investing strongly.

They dont get calls from a Goldman Sachs or a Morgan Stanley ... but they still do need advice, he said.

They still buy and sell companies, they still need M&A advisory, they do privately issue debt and use risk management products themselves. We are basically addressing the needs of our client base.

Sectoral data crunched by Reuters shows interest paid on loans still remains the main driver of revenue growth. But the pace of growth in non-interest income, which includes investment banking, for many banks is faster.

U.S. Bancorp, BB&T Corp, SunTrust Banks Inc, Fifth Third Bancorp, KeyCorp and Citizens Financial Group Inc together earned $6.97 billion in non-interest income in the third quarter, up 10.6 percent from a year earlier and 15.2 percent from the second quarter.

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