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September 23, 2004
PHILADELPHIA (September 21, 2004)—Amidst new concern about how rapidly the economy is recovering, lenders, by a 4:1 ratio, said they believed the economy would fare better under George W. Bush than it would under John Kerry, according to the results of this quarter’s Phoenix Management “Lending Climate in America” Survey.
Sixty-nine percent of the 107 lenders nationwide who responded to this quarter’s survey said a Bush Administration would be better for the economy. Fifteen percent said the economy would perform better if John Kerry were President, while 16 percent said it made no difference to the economy’s performance which leader was in office.
“The lending community clearly believes that George W. Bush offers a more economically sound plan for the economy than does John Kerry,” said E. Talbot (Tal) Briddell, Managing Director of Phoenix Management Services.
While overall sentiment among lenders remained relatively strong, respondents were noticeably less optimistic about gains in the economy and their customers’ prospects than they have been in previous quarters, Briddell said.
“After six consecutive quarters of steadily rising optimism, this quarter represents a back slide in lenders’ outlook. The economic recovery hasn’t generated quite enough traction yet for lenders to feel we’re completely out of the woods. We see their lingering concern in their predictions of customer growth and lending activity.”
Less than a quarter of lenders predicted any planned growth actions by their customers this year. Only 23 percent said their customers planned to make new capital investments in the next six to 12 months. When it came to hiring new employees, entering new markets, or raising additional capital, lenders said in each case that only 16 percent of their customers planned to take those steps. Only 13 percent said their customers planned to introduce new products or services.
After four consecutive quarters of increasing optimism about their customers’ growth, lenders backed off that enthusiasm, too. Only 21 percent said their customers anticipated “strong” growth in the next six to 12 months, down from 27 percent who said the same last quarter.
Lenders also downgraded their expectations for the economy’s performance in the next six months, lowering it to a C+ from the B- they gave it last quarter. They feel more confident about the longer-term health of the economy, predicting it will perform at a solid B level during the first half of 2005.
While more than half of all respondents expect lending to large, middle market and small business customers to increase in the next six months, their predictions for lending activity dropped in all three sectors this quarter.
Fifty-five percent expect corporate lending to rise (down from 68 percent last quarter). Sixty-nine percent predict middle market lending will increase (down from 80 percent last quarter), and 70 percent said that small business lending would rise (down from 78 percent last quarter).
“While they haven’t lost hope for a positive domestic lending climate, lenders are less enthusiastic than they have been in previous quarters,” Briddell said. “Absent any strong economic gains, they are likely to remain circumspect.”
When asked which industries were the most attractive to their lending institution, lenders named the same three that have topped the list for nearly two years—Light Manufacturing (89 percent), Industrial Distribution (80 percent) and Service Companies (66 percent).
Start-ups/New Ventures were deemed the least attractive industry to lend to, with 56 percent naming it unattractive.
Most lenders reported plans to maintain their existing loan structures.
Ninety-five percent of lenders expect the Fed to raise rates in the coming six months, with most predicting a half-point hike.
The Phoenix Management ”Lending Climate in America” Survey is conducted quarterly to gauge shifts in lenders’ attitudes toward the economy. 107 lenders from commercial banks, commercial finance companies and factors across the country were surveyed this quarter. Respondents completed a written questionnaire during August of 2004.
Phoenix Management Services is an operationally-focused advisory firm, providing turnaround, crisis and interim management and investment banking services to middle market companies in transition. Since 1985, Phoenix has aggressively advocated on behalf of its clients in over 700 assignments nationwide across a variety of situations and industries. With offices in Philadelphia, New York, Boston and Ft. Lauderdale, Phoenix preserves and enhances the value of its clients’ companies by focusing on the operational and financial challenges they encounter.
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