Magazine article American Banker

Execs Upbeat on Capital, Wary about Writedowns

Magazine article American Banker

Execs Upbeat on Capital, Wary about Writedowns

Article excerpt

Byline: Heather Landy

Almost half the banking sector's top executives say it has gotten easier to raise capital in the past six months - perhaps none too soon, considering their forecast for writedowns.

In a new KPMG LLC survey, 96% of chief executives and other senior bank industry officials said they expect the sector to get hit by heavy additional writedowns stemming from the real estate market, with 74% predicting the pace would be "more than normal."

Other red flags cited in the survey included writedowns of non-real-estate assets (for which the predictions are less alarming but still cautionary), the cost of new regulation and the persistence of high unemployment.

And yet, bank executives are generally bullish about the industry's prospects, with 57% agreeing that the sector is more profitable than a year ago and 75% saying they expect profitability to be even better a year from now.

"Clearly, there are still obstacles to a full-blown recovery," said Tony Anzevino, the partner in charge of KPMG's banking and finance practice. "However, the banks and financial services institutions that get a head start on preparing for the impending regulation and remain focused on growth opportunities in this environment may gain a competitive advantage."

In that regard, midsize and large companies are taking the most aggressive approach. More than 70% of executives at firms with annual revenue of $250 million or more described their current strategic emphasis as "investing for long-term growth," versus the less than 30% who said they were still "cost cutting for survival." For small firms, with revenue between $50 million and $250 million, only 56% of executives said they were investing for long-term growth.

Banks have been slower than nonbanks to escape cost-cutting mode, but the financial services industry on the whole has been getting stronger. …

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