STATE BANKS WEATHER THE STORM
Smaller institutions take hit, though sector remains strong
As Richard Fuld Jr. leaned into the microphone in early October 2008 on Capitol Hill in Washington, D.C., the Greenwich resident did not shirk responsibility for the financial panic that had frozen the global markets, in his role as CEO of the collapsed investment bank Lehman Brothers.
“Nobody, including me, anticipated how the problems that started in the mortgage markets would spread to our credit markets, and our banking system, and now threaten our entire financial system and our country,” Fuld said. “None of us ever gets the opportunity to turn back the clock. But with the benefit of hindsight, would I have done things differently? Yes, I would have.”
Fuld would absorb derision that day both from members of the House Oversight and Reform Committee, as well as irate protesters as he walked down the steps of the Capitol, with CNN pegging him among the 10 “culprits of the collapse,” along with fellow CEOs at American International Group, Bear Stearns, Countrywide and Fannie Mae, among others.
The No. 1 culprit, as determined by CNN? You, on grounds that consumers should have done things differently as well by clinging to the “borrower beware” ethic handed down through generations from the Great Depression, rather than purchasing homes with ballooning interest rates on the bet they could handle those obligations down the road or find a buyer to bail them out.
Nearly 10 years after the midSeptember collapse of Lehman Brothers, Connecticut homeowners have taken those bad bets and days of reckoning to heart, as have the lenders who pushed through those loans. Across all lending in Connecticut, problem loans totaled just 0.69 percent of all debt outstanding, versus 1.68 percent as the state and nation descended into the teeth of the Great Recession.
“Connecticut has had its challenges and it’s growing slightly slower than the other New England states. But I will tell you, there are signs in Connecticut — as we look at asset quality across the footprint, our borrowers are doing well. I just think it’s a question of a relative strength of growth.”
Webster Financial CEO John Ciulla
‘Signs in Connecticut’
Connecticut’s banking system has not transformed fundamentally since, though it has not been without change. The state’s banks employed 1,900 more people as of March than they did in early 2007, near the peak of the previous economic cycle.
But the state has 15 fewer banks today as smaller institutions have been swallowed up by larger holding companies, a development many in the industry predicted following passage of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which created stiff oversight rules that community banks complained they could not afford to put in place.
In the intervening decade, Connecticut banks have been far more cautious in their lending, with loans outstanding up 60 percent
today versus a 90 percent lending surge between 1998 and March 2008. Over the same two stretches, Connecticut banks have increased customer deposits at a quicker pace, at 64 percent versus 57 percent prior to 2008.
In a July conference call, Webster Financial CEO John Ciulla said that his bank sees evidence of consumers continuing to reduce debt, with the Waterbury-based company’s subsidiary Webster Bank the second largest in Connecticut after Bank of America.
“Connecticut has had its challenges and it’s growing slightly slower than the other New England states,” Ciulla said. “But I will tell you, there are signs in Connecticut — as we look at asset quality across the footprint, our borrowers are doing well. I just think it’s a question of a relative strength of growth.”
Of course, the financial panic’s effect extended far beyond banks, from Main Street financial advisers to big investment banks such as UBS and Royal Bank of Scotland which erased thousands of jobs from Stamford’s downtown corridors.
As of June, just over 2,100 broker-dealers were registered with the state Department of Banking to conduct trades on their own accounts, about 475 fewer than in the summer of 2008. The number of agents registered to place transaction orders with brokers has surged 22 percent in the last 10 years, however, to more than 170,000.
Jobs and lender confidence
If home ownership is one major foundation of any family’s financial well-being, a job is the bedrock, with mortgage lending dependent on a regular stream of income. Though the Great Recession caused pain in Connecticut, the state was near the midpoint nationally for lost jobs, according to researchers at the University of North Carolina, with just over 96,000 lost between 2007 and 2009 for a 5.4 percent decline.
That was far better than the 13 percent hit Nevada took and the 10 percent job loss absorbed by Florida and Arizona, though behind New York, which had a comparatively resilient economy with a 3.6 percent reduction that was among the 10 best marks in the country.
But Connecticut’s woes were exacerbated by what had been among the five lowest job gains in the nation between 2000 and 2007, at less than 0.5 percent; and the trajectory since 2009, with employment up only 4.6 percent between 2010 and 2017, last in the Northeast and with the U.S. gain at 12.5 percent.
Upstate New York and Connecticut have experienced essentially the same rate of job growth since 2010, according to Manisha Srivastava, an economist in the Connecticut Office of Policy and Management who penned a July study of Connecticut’s economy since the recession.
“Many of the issues that affect Connecticut also affect upstate New York — including slow population growth, decades-long loss of manufacturing jobs and the exit of larger employers,” Srivastava wrote last month. “Western Massachusetts, even though it does not have a major city, continues to outperform both Connecticut and upstate New York.”