By Brendan Intindola, Andrew Johnson and Mia Lamar
Bank executives from across the country presented a dour outlook
for 2013 at a two-day investor conference in Lower Manhattan
sponsored by Goldman Sachs, saying they expect continued low
interest rates stemming from Fed stimulus efforts to hurt
profits.
"The environment in 2013 will continue to be difficult," said
James Rohr, chairman and chief executive of PNC Financial Services
Group Inc. (PNC). "We're going to continue to have low interest
rates."
Doug Braunstein, chief financial officer of J.P. Morgan Chase
& Co. (JPM), told the audience at the Conrad Hotel near
Goldman's headquarters that lower rates would reduce 2012 and 2013
profits by $400 million in each year, and that capital-market
revenue was lower in the current quarter than in the previous
one.
State Street Corp. (STT) held fast to its October warning that
rock-bottom interest rates and another round of Fed bond-buying
could push down its net interest margin next year at the high end
of a 10 to 12 basis point range.
"We also expect the rate of decline to continue in 2013," Chief
Financial Officer Edward Resch said. "Additionally, We're not
expecting our balance sheet to grow significantly next year."
The comments come on top of recent data showing deal-making and
trading activity slowing in the fourth quarter.
Equity and debt underwriting have slowed from the third quarter,
completed merger activity is slowing as well, and trading volumes
are barely higher according to a recent Barclays note.
Nomura analyst Glenn Schorr said in a note that "negatives
outweigh the positives" in October, and that the fourth quarter
appeared to be falling short of estimates. "We are not expecting a
huge pick-up in activity through the end of the year," the note
said.
Still, a few bank executives were optimistic.
"Investors do have to get back into the marketplace," said Bank
of New York Mellon Corp. (BK) Chief Executive Gerald Hassell. "Any
little bit of economic growth on a global scale cannot be supported
by bank balance sheets, so it's going to cause the capital markets
to re-energize."
Many said they believed policy makers in Washington would
achieve some kind of resolution to the so-called fiscal cliff
dilemma of combined tax hikes and spending cuts set to take effect
Jan. 1, which could boost optimism and economic growth.
"I think they're actually very close," BlackRock Inc. (BLK)
chairman Larry Fink told the audience. "I think it's a lot of
noise. I think if we had business people in the room doing an
M&A deal, this thing would have been settled weeks ago. To me,
I think the reach on both sides is not that great for a real
compromise."
He added: "In my conversations with a lot of the men and women
who were involved in the negotiations, they believe they will find
a solution, but it will happen at the last moment."
And Morgan Stanley (MS) executive vice president Greg Fleming
said if there is a resolution to the uncertainty that markets
embrace, "then we think 2013 could be a different environment from
a market standpoint for the first time in a number of years."
But overall, many of the executives comments tended to sound
more like those of Ken Chenault, chairman and chief executive
officer of American Express Co. (AXP), who was downbeat about his
expectations for consumer borrowing going forward, and noted many
consumers have trimmed their debt since the financial crisis and
are less apt to carry large balances. The shift has made it
difficult for many credit-card lenders, which largely rely on
interest income, to increase revenue.
"I, in fact, have serious doubts that the lending behaviors that
existed pre-financial crisis are going to return 100%," Mr.
Chenault said. "I think that some consumer behaviors have
changed."
Write to Christian Berthelsen at
christian.berthelsen@dowjones.com