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:
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.
