U.S. banking executives share common concerns about the sector over the remainder of the year.
The banking industry, which touches every essential part of the U.S. economy, can be the canary in the coal mine of the nation's economic outlook. When the canaries are ailing, we should pay attention.
Stephens Inc. released a report last week that outlines worries over core issues, including deposits, loans and merger and acquisition activity. Deposits are projected to continue slowing, loan growth won't be as robust as it was in the first half of the year and merger and acquisition activity essentially will dry up.
Of course, we'll see precise details beginning next month when financial institutions report third- quarter earnings for the period ending Sept. 30.
Stephens' banking team surveyed bank management teams across the nation. The results included responses from 114 bankers and 48 industry investors.
Keep in mind the report was released before the Fed announcement Wednesday that it would raise interest rates another 75 basis points -- on top of four other increases this year -- to 3-3.25% in the firefight with inflation. Bankers expected the increase. More troubling, the Fed indicated other increases are on the horizon and we likely will end the year with upwards of a 4.5% interest rate.
Key findings from the Stephens report:
• Investors are more cautious about deposits leading into the end of the year and 88% expect deposits to slow in the third-quarter and fourth-quarter reports. Bankers also were cautious about deposit growth predictions.
• Regarding loans, investors here too predict loan growth will drop off going forward compared to growth in the first six months of the year. Bankers expect similar-to-less loan pay downs and are more optimistic than investors about loan production. Stephens' conclusion: "We think net loan growth is setting up for positive surprise in near-term."
• News is worse for the merger and acquisition landscape, which has gone through 171 U.S. bank transactions in the past 12 months. That will change and the Stephens team says the outlook for the next year "remains bleak." Bankers' expectations for M&A deals are at an all-time low since Stephens began the survey in 2017. Results show 81% of bankers and 65% of investors predict a downturn. "Overall economic uncertainty was the primary reason behind the anticipated slowdown," the report said. Just a year ago, more than 90% of bankers were forecasting deal activity would pick up in the next 12 months.
• Office commercial real estate loans "rank as the most concerning asset class for both investors and bankers."
• There was an interesting difference of opinion for the second most concerning issue: bankers mentioned retail commercial real estate while investors elevated construction and development above that.
• Investors who participated in the survey were generally bullish on the outlook for stock prices, with 60% giving an overweight rating though that is down from 80% earlier in the year.
CONWAY ENTREPRENEUR SUPPORT
Conway has opened an innovation center to support entrepreneurs and startup growth.
The membership-based space at 121 Oak St., the former city hall, is built for startups, entrepreneurs and small business owners to launch, collaborate and grow their operations. The space is managed by the Conductor, Conway's entrepreneurial support organization, and will offer low-cost co-working space, rented desks, and meeting and event space.
"The innovation center will become the epicenter of Conway's startup community," Conway Corp Chief Executive Officer Bret Carroll said. "This is an ideal location from a technology standpoint and a historic one. It's in the heart of the data district and just a few steps from where almost 150 years ago, Conway's original startups were launched."
The Arnold Innovation Center is named in honor of retired Conway Corp Chief Executive Officer Richard Arnold. Membership is limited to small business owners and entrepreneurs.
The center offers high-speed internet, workspace, meeting space, collaboration with other early-stage companies, networking events and access to direct small business support.
"We are building a space for creative collisions where entrepreneurs find like-minded individuals and a community of resources that lower barriers to starting and growing a business," said Grace Rains, the Conductor's executive director.
A grand opening ceremony is scheduled Wednesday from 5:01-7 p.m.
SHACKLEFORD COMMERCIAL SALE
An Alabama commercial real estate firm has purchased the Shackleford Business Center, a west Little Rock office and warehouse facility, for $3 million.
Stoic Equity Partners of Fairhope purchased the 48,000-square-foot property at 3200 S. Shackleford Road. The facility, built in 1985, is home to Hangers Cleaners, Furniture Options and Garment Management Systems.
"Shackleford Business Center is a well-leased facility located in an amenity-rich area of Little Rock near I-430," said Nathan Monan, a broker with Colliers of Arkansas who represented the buyer. "This property will make an excellent investment for its new owners."
LEARN GOVERNMENT CONTRACTING
Arkansas small businesses that are socially or economically disadvantaged have an opportunity to gain a foothold in government contracting through a seminar Tuesday hosted by the U.S. Small Business Administration.
SBA's Arkansas office is holding an hourlong business development program that will help businesses compete for federal contracts with limited competition. The program will offer tips on navigating federal contracting requirements and offer management and technical assistance as well.
Business owners will receive training to participate in SBA's 8(a) program. Through the program, socially and economically disadvantage Arkansans will learn how to gain access to set-aside awards from the federal agency. The federal government's goal is to award 5% of all prime and subcontracting dollars to small, disadvantaged businesses each year.
More information is available at sba.gov/district/arkansas.
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