The Future Of Banking: Big, Cautious

The Future Of Banking: Big, Cautious

April 18, 2008; Page C1

Your neighborhood bank is getting bigger.
One consequence of the credit debacle is that loan "securitization," the business of grinding home, business, auto and other loans into credit sausages and dishing them off to investors, has become a tougher sell. Commercial banks will increasingly have to keep the loans they make, for richer or poorer.
It's already showing up on bank balance sheets. Total assets at U.S. commercial banks swelled to $11.12 trillion in early April, up from $9.94 trillion a year ago, according to Federal Reserve data that are updated every Friday. Last month, the growth rate of bank assets hit its fastest growth pace in 28 years.
Regulators and market forces could help to keep balance sheets ballooning.
One problem with securitization was that it gave lenders less reason to care whether borrowers paid the loans back. Regulators and investors in these securities will likely make sure that doesn't happen again, partly by forcing banks to keep a bigger stake in the loans they make, J.P. Morgan global market strategist Jan Loeys said in a research note this week. That will put upward pressure on balance sheets.
Regulators could also crack down on the fun banks have squirreling credit risk away where it doesn't need to be counted, into off-balance-sheet entities like conduits and structured investment vehicles, Mr. Loeys said. Citigroup, which reports first-quarter earnings Friday morning, was the biggest player in such off-balance-sheet vehicles and has already taken a big hit from dragging assets back under its own roof. In the future, it may have less incentive to push them back out again.
Herding so much risk back into old-fashioned banks and out of the so-called shadow banking system could make the Fed's job simpler. But it will also force banks to raise more capital to cushion their hefty balance sheets and keep them leery about lending, and potentially less profitable.
Stock for Hire: Manpower Hangs In
As more workers receive pink slips nationwide, it isn't surprising that investors in temporary-staffing companies have been calling in sick.
But that might not be a wise move when it comes to Manpower Inc.
Analysts had been bringing down their first-quarter estimates for the world's second-biggest staffing company to reflect the shifting job market. There were 118,000 fewer temporary-help jobs nationwide in March than a year ago, according to the Labor Department. But Manpower isn't doing all that badly. Even if it reports earnings Friday at the low end of expectations, about 78 cents a share, it would represent a respectable 11% increase from a year ago.
The company gets only 10% of its revenue from the U.S. The bulk of its revenue -- about two-thirds -- comes from Europe, where it benefits from a strong currency. Chief Executive Jeffrey Joerres said he expects the Asian labor market, where Manpower has a growing presence, to "continue to be strong."
The stock is cheaper now than it was during the past two recessions. For instance, at 10.4 times 2008 earnings, it's well below the price/earnings ratio of 13.6 it hit in 2001.
At these prices, Manpower shares could be a good hire.