Empty storefronts will be fi lled, but next tenants might be quite different
Retail isn’t dead, but that doesn’t mean that the mall you hung out at as a teen — or even the place where you bought a refrigerator last year — will survive.
Changing demographics, new ways of shopping and shifts in consumer spending have left big holes in the retail landscape that are apparent to anyone who has driven on a major highway in central Ohio recently.
Retail and real-estate experts say a “survival of the fittest” climate has taken hold in a big way. Weak, out-of-touch retailers and retail spaces are closing
announced by JPMorgan Chase, Wells Fargo, Citigroup and others following the Fed’s statement.
Looking out further, many big institutions might have more flexibility to lend, a major factor in promoting the long-term growth of businesses. And at least in theory, the more capital the banks now hold and less stringent oversight of the financial sector by Washington could give the economy a shot in the arm after years of caution.
“It’s not a sudden thing. It’s been a long time coming,” said Guy Moszkowski, managing partner at Autonomous Research U.S., an independent firm in New York. “But American banks are more soundly capitalized today than at any time in my career, which started in 1979.”
On the other hand, critics fear that the easing of regulatory pressure and a more laissez-faire-oriented White House could set the stage for a return to the bad old days of
enormous leverage and freewheeling deals until the music inevitably stops.
“This isn’t the time to put the brakes on regulation,” said Mark T. Williams, a banking expert at Boston University and a former bank examiner for the Federal Reserve. He noted that with the 10 largest U.S. banks holding 80 percent of all banking assets, “this concentrated financial power residing at the top banks should be carefully monitored.”
“Without regulators and cops in the corner, you will have incentives for banks to take excessive risks,” Williams added.
It was exactly 10 years ago this month, as the housing bubble collapsed, that the first cracks in what would nearly bring down the country’s economic edifice appeared.
Within 18 months, Bear Stearns and Lehman Brothers were gone, and once invincible names like Citigroup and Bank of America teetered on the edge, necessitating a federal bailout.
The economic and
psychological scars of the financial crisis and the ensuing recession linger, as do the industry’s public relations woes.
But in terms of financial metrics like earnings, dividends for shareholders and the ability to absorb potential losses in the event of a recession, the financial sector has clearly turned a page. The banks tested by the Fed now have a $1.25 trillion capital cushion, compared with less than half that in 2009.
In a statement Wednesday, the chief executive of Citigroup, Michael Corbat, said, “Today marks a significant milestone for Citi and our shareholders.”
The Fed’s assessment, he said, demonstrated that “Citi has the ability to withstand a severe economic scenario and remain well capitalized, while also substantially increasing our level of capital return.”
Although President Donald Trump has promised to roll back many of the rules imposed after the financial crisis while appointing regulators with a much lighter touch, many bank analysts say memories of 2008 and the
penalties that followed will also inhibit risk-taking in the future.
“Parts of the industry had a near-death experience, while some financial institutions actually had a death experience,” Moszkowski noted. And as was the case following the crash of 1929, “the legislative and regulatory response was quite harsh.”
The 2008 crisis “forced the U.S. banking system to recognize its losses and recapitalize itself quickly,” Moszkowski said. “The lack of that type of pressure in Europe has contributed to what has been a longer period of weakness and recovery there.”
With European banks still hobbled, U.S. firms have benefited in recent years, lifting their share of global revenues from underwriting and advice on mergers and acquisitions.
Nearly a decade of historically low interest rates engineered by the Fed also helped banks rebuild their financial fortunes, even if savers and investors watched the yields on money market accounts and CDs shrink to the point of vanishing.
“The banking industry has pretty radically de-risked its balance sheet,” said Chris Kotowski, a senior research analyst at Oppenheimer. For example, in 2007 banks held more than a quarter of a trillion dollars’ worth of corporate bonds on their trading desks and other accounts. By April, that figure stood at just over $54 billion.
The rate of delinquencies on products like credit cards and commercial real estate loans is half what it was during previous periods of healthy economic growth, Kotowski said.
At the same time, while banks may have the ability to lend more freely, anemic demand for credit and slow economic growth are likely to restrain new loan growth. And the Fed is in the process of slowly raising interest rates in the face of what policymakers see as stronger economic growth.
If rates keep moving up, higher borrowing costs for businesses and consumers would most likely offset whatever benefit slightly easier credit from a healthier banking system provides.