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Where’s the Beef on C&I?
If bankers were to name their enemy within, it would be commercial and industrial lending.
C&I lending is said to be the ticking time bomb yet to go off. Wait until all those renewals — and subsequent writedowns — come, goes the conventional wisdom. Consider this recent TheStreet.com article:
Losses from commercial and industrial, or C&I, lending, and commercial real estate still appear to have a ways to go. Moody’s estimates that U.S. banks will post another $336 billion in write-downs through the end of 2010. The largest portion of losses will come from residential real estate, which is spread across many banks throughout the country. But roughly 23% of the losses will come from commercial real estate, which is segregated to fewer banks that loaded up on such loans. They haven’t recognized losses to the same degree as their residential-weighted peers, because commercial pain tends to come later in the cycle.
For instance, a recent report by Citigroup equity analysts found that “consumer-heavy” banks and those that underwent large acquisitions are far past the worst of their credit cycles.
For instance, a recent report by Citigroup equity analysts found that “consumer-heavy” banks and those that underwent large acquisitions are far past the worst of their credit cycles.
By contrast, banks that are heavily weighted in C&I lending, or commercial real estate, are at the weak end of the spectrum. M&T Bank has the furthest to go, having posted just 38% of its estimated total write-downs, according to Citi’s analysis. Comerica has written down just 42%, BB&T and New York Community Bank just 44% and Regions Financial 45%, according to Citi.
“C&I and CRE players have way to go,” says analyst Keith Horowitz.
The actions of the nation’s largest banks, however, would suggest a different perspective. Last week, the Treasury Department released monthly lending figures for the nation’s largest banks, and many were active in C&I lending in October, the most recent month for which data was made available. Even among the 
five banks cited by Citi, C&I wasn’t the dour lending category you would expect. Consider BB&T. Year-over-year, C&I new commitments fell 23% in October to $1.4 billion. However, on a month-over-month basis, that number was up 40%. Comerica also grew its C&I lending in October to $333 million, a 24% increase.
The nation’s largest C&I lender — JP Morgan Chase — made nearly $17 billion of new commitments in October, an increase of nearly 30% compared to September. Year-over-year commitments were about 15% less at JPM.
Suffice it to say, the nation’s largest banks (20 of which make C&I loans) held about $1.1 trillion of C&I loans and leases outstanding at the end of October, renewed about $61 billion C&I facilities, and made $49 billion new C&I commitments. The total outstanding balance of C&I loans fell 1%; the median change in average outstanding C&I balances was a decrease of 2%. To me, that seems like reasonably robust activity considering what’s going on in the market. As Treasury explained, “Nearly all respondents (the banks) indicated that, throughout the recession, demand in C&I lending has remained well below pre-recession levels. Companies continued to focus on preserving liquidity, strengthening their balance sheets, building cash reserves and paying down existing debt rather than taking on new debt.”
And despite that, $49 billion of new commitments were made by the 20 largest banks in the nation. Either they are speeding toward a wall of writedowns or they know something the conventional wisdom doesn’t about C&I credit performance. Indeed, we’ll find out soon enough.
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