ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, January 7, 1996 TAG: 9601110133
SECTION: BUSINESS PAGE: D5 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
Bankers can expect ``a continued upward trend of profitability'' in 1996, according to an analyst who follows the industry for Davenport & Co.
David West added, however, that some ``earnings hurdles are gathering on the horizon'' for banking.
He believes that this year will bring a more modest growth rate for banks than in the past few years. Banking stocks, he pointed out, have had ``a good run in the last several years, but the market always asks what you're going to do next.'' Right now, he said, bank stocks have high values.
The trend toward bank consolidations will continue this year as well, West said, because ``there are too many financial institutions.''
One of the problems facing banks, he said, is ``moderating loan demand.'' Loan activity has been good in the past few years, he said, but is ``not as robust'' as it once was.
Another potential problem, he said, is the challenge of stabilizing a bank's margins - the difference between the interest income it earns on loans and the interest rates it pays on deposits.
Margins have been good in the environment of low interest rates and rising income, West said, but he believes most banks will be able to maintain their margins in a slower-growth situation.
The analyst said he expects income from fees to grow modestly.
Banks have become more efficient, West said, but the expense controls already in place were relatively easy to find. Future efficiencies will be harder to wring out of the companies, he said.
Recent financial statements from banks show rising loan delinquencies and the resulting charge-offs by banks of bad loans, West said. While this is a threat to the industry, he noted that delinquencies had been ``abnormally low'' in the past few years, so the situation is just returning to more normal levels.
Despite the megamergers that are yielding national and superregional banks, the environment continues to be favorable for relatively small, community banks, West said. These smaller banks are beginning to invest in technology, he said, and this will have a long-term favorable effect on their ability to compete.
Unless the market overall ``behaves badly,'' West said, this year should be solid, but not dramatic, for banks' growth.
Ben Jenkins, president of First Union National Bank of Virginia, said he expects a ``tougher'' environment this year because the economy will be slower. ``Loan growth will be tougher to come by,'' he said. ``The economy and loan growth will be slow.''
He expects the growth of loan business to be only in single digits this year.
First Union is busy absorbing the newly acquired First Fidelity Bank of Newark, N.J., Jenkins said. The merger took place Dec. 31. This will give First Union a large presence in Baltimore, he pointed out, and these offices will be managed from Roanoke.
That means that First Union should have ``solid'' employment in Roanoke this year, Jenkins said. First Union has 2,200 workers in the valley, the area's largest single banking company.
Jenkins said consumers should notice more choices in bank products this year and beyond. Banks will offer a ``broader product array,'' such as annuities and mutual funds, so customers can pick the type of investment best suited to them.
Automated teller machines will be enhanced and expanded, he said, and more people will be banking by phone, ATM and home computer. Banks will be more active in technology, such as banking services on the Internet.
Ryland H. Hubbard, manager of the Roanoke office of Merrill Lynch, said securities brokers had ``a terrific year'' in 1995. More assets were under management than ever before.
He said Merrill Lynch locally sees low inflation, low interest rates and, it is hoped, a federal budget deal this year.
Public perceptions of the economy ``shape our business,'' Hubbard said, and he is hoping that investor confidence will remain high during the year. His company will emphasize enhanced products, technology and training.
Merrill Lynch is sufficiently confident of the outlook for 1996 that it is negotiating for greater office space this year. Hubbard said Merrill Lynch has not yet signed a deal, but that the company definitely will remain downtown.
LENGTH: Medium: 79 linesby CNB