Letter: Banks not to blame in Michigan

The following Op-Ed appeared in the Detroit News January 20 issue.


Brian O'Connor's comments in his column, "Bankers, politicians gave us plenty of reasons to be angry in 2011," clearly demonstrate a frustration.

However, he need not align himself with a populous percentage point or resort to copycat name calling to try to understand the facts of the current economic problems we are facing.

Facts:

The loss of 1 million manufacturing jobs over more than a decade has decimated the Michigan economy. The outsourcing and demise of these jobs was not caused by the banking industry.

A full 94 percent of the high-risk mortgages, which were at the heart of the mortgage meltdown, originated outside the banking industry.

That means banks did not make those mortgage loans. They were made by non banks at the urging of Government Sponsored Enterprises, Fannie Mae and Freddie Mac.

All the new federal laws on banking and the Consumer Financial Protection Bureau add nothing to the examination of these sectors — nothing.

U.S. Treasury — taxpayers, profited nearly $19 billion from banks using the TARP program.

The overwhelming majority of customers do not overdraw their accounts and never pay an overdraft fee. They are responsible and don't spend money they do not have.

For those who do, voluntary overdraft protection programs are vastly more beneficial to customers than notifying merchants that an account is overdrawn and the purchase must be refused.

Please note, willfully overdrawing an account is still illegal.

The banking industry in Michigan suffered the same economic hits as the rest of our state. Our banks struggled as their customers struggled and banks helped many of these customers through very challenging times.

Savings are secure and banks loan money to customers every day at very reasonable rates. Our industry is sound and, like the Michigan economy, on the mend. We have the most effective and most affordable financial services in the world.

Banks provide convenient, safe, and reliable financial services and payment options and consumers have many, many competitive choices for these services from more than 150 banks in Michigan.

Dennis Koons, president and CEO, Michigan Bankers Association, Lansing

2012 Outlook from the Wealth Management Group

Understanding economic themes is important in managing money. However, it is not MB&T’s investment style to make specific economic predictions and then attempt to time the various markets based on forecasts. We are more comfortable with identifying broad financial trends, then, through proper asset allocation and diversification insulate our managed portfolios from the risks these trends may pose and conversely take advantage of the opportunities. Please take with a healthy dose of skepticism dramatic sounding New Year predictions and, as always, remain focused on the longer term. This year is likely to be impacted by three trends: 1) an improving U.S. Economy, 2) a European recession and finally 3) China’s economic growth.

Our internal U.S. economic models have been improving. Specifically, during the last half of 2011 our models gave us confidence that 2011 would not see a recession as many thought. Beginning in December, this improvement accelerated which should bode well for 2012 or at least the first half of the year. One data point helping us come to this conclusion is the unemployment claims figure which has been trending in a positive direction. Given this progress, consumer discretionary stocks are expected to outperform.

While many investors have been focused on the European sovereign debt crises, and rightfully so, the greater impact is currently coming from the collateral damage this issue is having on the European economy by driving the continent into recession. The debate now is over the scale and depth of the economic contraction. The parameters of that discussion are from “bad” to “this could get ugly”. An “ugly” European recession would likely be trouble for U.S. equity markets. As for the on going sovereign debt crises, it has not been solved. This issue may well resurface with a vengeance in the first quarter as hundreds of billions of euro debt come due and must be refinanced.

In a recent institutional investor survey, participants cited China as their number one concern in 2012. This is rather remarkable when one considers all the rotten news from Europe. What has these professionals so nervous is the recent plunge in the Shanghai stock market (-32%), declines of this magnitude usually signal more trouble to come. The Chinese economy appears susceptible to a construction spending bubble. This in turn, could send shock waves throughout the banking sector. All is not gloom and doom, however, recently the government has announced its intention to re-inflate the economy which sent the Shanghai stock index up over 5%. China needs to be watched carefully, given the size and the rapid growth of the economy any significant change in direction would likely have important repercussions globally.


This article expresses the views of the authors as of the date indicated and such views are subject to change without notice. MBT Wealth Management Group (“The WMG”) has no duty or obligation to update the information contained herein. Further, The WMG makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is the potential for loss.

This information is being made available for educational purposes only and should not be used or construed for any other purpose. The information contained herein does not and should not be construed as an offering for advisory services, an offer to sell, or a solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. The WMG believes that the sources from which such information is derived is reliable; however it cannot guarantee the accuracy of such information or the assumptions upon which it is based.

BANK ECONOMISTS SEE GRADUAL IMPROVEMENT IN U.S. ECONOMY

From the American Bankers Association:

WASHINGTON - The U.S. economy will continue on a course of moderate growth with relatively low inflation and steady job growth in 2012, according to the forecast from the Economic Advisory Committee of the American Bankers Association.

According to the committee, which includes 11 chief economists from the largest banks across the country, inflation-adjusted GDP growth rose to an annualized pace near the long-term potential of 2.5 percent in the latter half of 2011, and will stay on this path throughout 2012.

“Despite severe shocks in recent years, the economy has shown resilience as it continues a gradual march forward," George Mokrzan, committee chairman and Huntington Bank chief economist, said. “The economy is gaining momentum, with strong capital expenditures from businesses and moderate consumer spending setting the stage for sustained growth.”

Although the unemployment rate is expected to remain relatively stable at 8.6 percent, the economy should add 1.6 million payroll jobs – the same number it did in 2011. The committee noted that the job recovery will be prolonged.

“We’re moving from a difficult environment to one that is slowly starting to improve,” Mokrzan said. “The recovery is adding jobs, which will spur consumer spending and increase housing demand. This helps the economic expansion to become more self-sustaining.”

Even though consumer confidence remains weak, the committee expects consumer spending to continue to grow by a 2.0-2.6 percent pace each quarter and by 2.4 percent this year. That rate, along with strong business spending, will keep the economy on a slow, but steady path forward.

"Solid corporate earnings will encourage business investment, with capital equipment leading the way," Mokrzan said. "Additionally, consumers are taking advantage of historically low interest rates and beginning to spend more."

The committee sees signs that housing price declines are easing nationwide, but not in all areas, and there are risks that foreclosures could begin to pick up. Housing sales and starts climbed throughout 2011, and the committee forecasts a gradual recovery throughout 2012.

“Record affordability has made buying a home an attractive proposition, and should help increase demand,” said Mokrzan.

Low interest rates and strengthening credit will support economic growth, according to the committee. For consumer credit, and even more so for business credit, the committee foresees a gradual reduction in delinquencies and a strengthening of credit growth in 2012. The committee forecasts consumer loans will grow 4.1 percent and business loans will grow 7.8 percent in 2012.

“Banks are increasing lending to borrowers, which will continue to support the economic expansion,” Mokrzan said.

With moderate economic growth and business investments in productive capacity, the committee predicts core inflation - excluding energy and food - will remain below 2 percent through 2012, just as it did last year. Absent inflationary pressures, the committee expects the Fed to maintain the federal funds rate target at its current level throughout the year. However, spikes in energy prices remain a risk to the committee’s inflation forecast.

Low inflation and Fed policy will keep interest rates down in general, according to the committee. The forecast for 3-month Treasury bills is to hold near zero through this year. The 10-year Treasury note and 30-year mortgage rates are expected to rise to 2.5 percent and 4.3 percent respectively by year-end.

Despite a moderately positive outlook, the group sees several significant downside risks to the U.S. economy, including the European debt crisis, challenges surrounding U.S. fiscal policy and geopolitical risks.

“Europe will likely experience a mild recession this year, which will slow U.S. exports, but will not dramatically affect our economy unless Europe’s financial challenges become much more severe,” Mokrzan added.

The members of the ABA Economic Advisory Committee are:
• EAC Chair George Mokrzan, Director of Economics, Huntington Bancorp., Columbus, Ohio;
• Scott Anderson, director and senior economist, Wells Fargo & Company, Minneapolis
• Scott J. Brown, SVP and chief economist, Raymond James and Associates, St. Petersburg, Fla.;
• Robert Dye, SVP and chief economist, Comerica Bank, Dallas;
• Ethan Harris, co-head of global economics, Bank of America Merrill Lynch, New York;
• Stuart Hoffman, chief economist, PNC Financial Services Group, Inc., Pittsburgh;
• Peter Hooper, co-head of global economics, Deutsche Bank, New York;
• Nathaniel Karp, executive vice president & chief economist, BBVA Compass, Houston;
• Bruce Kasman, SVP and chief economist, JP Morgan Chase, New York;
• Christopher Low, chief economist, First Horizon National Corp’s FTN Financial, New York;
• Gregory Miller, VP and chief economist, SunTrust Bank, Inc., Atlanta


The American Bankers Association represents banks of all sizes and charters and is the voice for the nation’s $13 trillion banking industry and its two million employees. Learn more at aba.com.