NY Post
Jim Daigle would love to hire three more employees for his Fort Lee, NJ, sports industry computer programming company -- but he can't get a bank to lend money to his 23-year-old company even though it's profitable and grew by 16 percent last year.
"I can't hire people until I have the money to make the payroll even though these people are ultimately the ones that make the money," he told The Post last week. "Down the road, they are paying their own way, so to speak, and the money [borrowed] is returned."
Daigle is not alone.
Banks, afraid of new and as-yet unknown federal regulations coming down from Washingon, have cut corporate lending in each of the last 12 months, according to Federal Reserve statistics.
Many of the banks are now profitable, and seemingly want to lend, but they can't because they don't have all of the variables yet. Lending to small businesses now may put them in a loan that requires new capital mandates and structures once reforms are passed. Furthermore, their pricing may be off if they lend now, especially if they have to separate prop trading from their balance sheets.
And its not just corporate loans not getting done.
Anyone who has tried to get a mortgage these days knows rates -- especially the jumbo-mortgage rates necessary in the New York area, are a lot higher than the national, 30-year fixed rates advertised. And trying to get a bank to lend you the money even if you can qualify can take months.
Again, much of the blame goes to Washington.
As one economist put it last week: How many 5 percent, 30-year loans do you think a bank wants to make if it thinks inflation is likely and a new federal rule might force them to keep a chunk of that debt on their books?
In the camp of unforeseen consequences, we need not look farther than new credit card law. Is anyone seeing easier or less expensive credit here? About the only thing that changed was the national average interest rate charged went up right before it became law. Washington had a bonafide chance for reform, but passed on its responsibility.
So banks prefer not to lend or have to resort to pricing with a huge extra margin. Until the rules are specific and laid out in a clear, non-political form, credit creation will continue to remain weak, and a sustainable economic recovery will remain out of reach.
Daigle, the president of Sports Systems -- a 12-person outfit specializing in computer programming for prestigious clients such as the Kentucky Derby, US Open and AT&T -- said banks refused to budge unless he put up his West Side apartment as collateral.
"That is asking for too much," he said.
Daigle said he was seeking up to $200,000 in bank loans after his existing lines of credit were trimmed, modified and cut. "I got laughed at by the banks, essentially, when I went out looking for new credit," he said. The jobs he planned to create are in sales and production, and pay from $40,000 to $100,000 a year.
Daigle said one bank flat-out told him it would not make a loan to his company. He said another bank, a local community bank, told him its hands were tied. "They said that the bank auditors were being tough about loan portfolios that were outstanding, and they wouldn't be interested in lending to us in this environment," Daigle said.
What does this mean to Wall Street and Main Street alike?
At best stunted growth and the increased likelihood of a double dip in the future as the Stimulus fades.
While many economic subjects are hard to understand or are statistically vague, one thing is not: Bank lending and job growth are linked at the hip.
The 290,000 jobs added in April, is a positive sign, but with unemployment rising to 9.9 percent and the constraining lack of capital, including bank loans to small businesses and mortgages, the economy will have a very tough time sustaining growth for the foreseeable future.
Jonathon Trugman is a New York-based investment manager.
