You should have been there for the state of the economy.
by Larry Blumsack, President, Zoka Institute
Larry guest blogs a Should Have Been There column for ACG
Almost 300 attendees kicked of the season at the opening Dealmakers Breakfast this past Friday at the Intercontinental Hotel. Brian T. Moynihan, recently promoted to President of Bank of America’s Consumer Banking Division presented a straight forward look at the present state of the economy. Few predictions were made while he laid out a simple formula of what he and his team at BofA sees as the steps to rebuild the economy.
Moynihan laced his talk with guarded optimism as he focused on two issues – leverage and liquidity. The two forces that both caused the current economic downturn and properly managed will get the country out of the downturn. He focused on 5 topics – the economy, what customers are saying, what needs to be watched carefully, what went wrong where and capital markets. The BofA economists see the country coming off a low based with growth of 2.8%, unemployment down in ’09, interest rates staying low and stability in the housing market with inventory low. Customers are saying they are hanging by their thumbnails and keeping their deposit balances stable or drawing them down with under-employment affecting their purchasing power. A positive sign is that corporate customers are frozen with no downward trend. In fact, they have $2 Trillion in wealth ready to spend.
“Unemployment and spending” states Moynihan is what keeps him up at night. “These are the areas that have to be watched carefully.” What when wrong and where is first leverage, people borrowed too much and spent too much. He also admitted that banks lent too much with the result that liquidity was key factor in the economic downfall. Stabilizing liquidity will come about once leverage is regulated. The bank sees that state of the capital markets has improved in the past year. More deals are being done with $1 Trillion in the economy available to be invested. Still he cautioned that we aren’t out of the woods yet. Activity is high while the refinance risk is lower – again the issue of liquidity. He sees the next shoe to drop is the commercial real estate market because of overcapacity in major cities. The impact won’t be as painful as consumer debt.
Moynihan predicts a banking industry structure consisting of big banks from more and more consolidation.
On a positive note he pointed out that 70% of the Fortune 500 companies were started during a recession. And that Bank of America has an obligation to keep fueling the economy and is doing so carefully.
