The majority of respondents to a recent survey presented in the January 2008 edition of Mercer Capital’s Bank Watch are expecting a difficult, if not dismal, 2008. Nearly 83% of respondents believe that the American economy will be in a recession at some point during 2008. In keeping with this theme, virtually all of the respondents believe that interest rates will decline in 2008, and none expect them to increase, with approximately two-thirds of respondents expecting a decline of more than 50 basis points. Given the actions taken by the Fed after this survey, this is not surprising. Despite the current industry focus on credit quality, 40% of respondents listed margin performance and the interest rate environment as their primary concern going into 2008.
Opinions were rather mixed concerning when the industry’s earnings will bottom out, with approximately one-third of respondents indicating the first half of 2008, the majority (43%) indicating the second half of 2008, and the remainder stating that it will be 2009 or beyond before earnings recover. One lone dissenter believes earnings reached bottom in 2007.
However, with the credit crisis still in full force and the dominant topic in the industry for months now, the focus of concern continues to be the quality of the loan portfolio, with 66% of respondents listing that as their primary concern for 2008. Responses were mixed, however, with regard to the types of loans that will present the most problems in 2008.
We’d like to thank everyone who took the time to respond to the survey. We hope that you find the results informative.
Reprinted from Mercer Capital’s Bank Watch, February 26, 2008.