Corporate lending by banks is rising. Finally.
Jamie Dimon, chief of JPMorgan Chase, stressed that loans to midsize companies rose 3 percent.
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JPMorgan Chase & Company reported this week that its total portfolio of outstanding commercial banking loans rose to $97 billion in the third quarter, a 1 percent gain from three months earlier.
JPMorgan was the first of the big banks to report its third-quarter results, with the rest to follow next week. There are signs, however, that it is not an aberration.
In announcing the figures, Jamie Dimon, the chairman and chief executive, focused on the fact that "middle-market" loans — made to companies with annual revenue of $10 million to $500 million — rose 3 percent, to $35.3 billion, during the quarter.
Presumably he thinks that we will be more impressed if we focus on loans to smaller, and perhaps more sympathetic, companies. But he may also be right to focus there. Securities markets have also opened up, and larger companies — even those with less than sterling credit — have been borrowing more than before from that source. Smaller companies are more likely to be dependent on banks for new financing.
In both middle-market lending and in total commercial loans, the increases reported this week were the first for JPMorgan since it expanded in late 2008 with the takeover of Washington Mutual.
Some of the borrowing by large companies has been opportunistic, reflecting not so much a need for capital as a willingness to borrow at rates so low they seem hard to believe. Microsoft issued three-year bonds with a coupon of less than 1 percent. In its case, the money will help pay higher dividends. Other companies seem to be sitting on the cash they raise. But bank loans are most likely taken by companies that want to use the cash soon.
Over all, the volume of JPMorgan’s outstanding loans is still falling, a fact that can be used to support one popular explanation of what is wrong with the economy: Banks won’t lend, or perhaps borrowers won’t borrow. Either way, that is both cause and result of a weak economy.
That story line may have reflected last year’s reality better than it does current facts. The Federal Reserve’s data on total outstanding commercial and industrial loans shows lending is rising now, at both small and large commercial banks. The amounts are still falling at American branches of foreign banks, but those declines are not enough to offset the growth in lending by domestic institutions.
Rising loan totals can be a bad sign. Such loans soared in the weeks after Lehman Brothers failed in September 2008, but not because banks suddenly were more willing to lend. The opposite was true. What happened was that numerous companies decided to take all the money they could under letters of credit the banks had issued in better times. In some cases, the borrowers needed the money because they could no longer sell commercial paper. In others, they feared that unused lines of credit would be canceled.
After that surge, bank lending plunged. Banks tightened credit standards and, like many investors, became intolerant of any real risk.
In the third quarter of last year — even after the recession had ended — commercial and industrial loan volume fell at an annual rate of about 25 percent.
Now, however, the volume has stabilized, and it is even rising a bit.
That is not true of some other types of loans. Fed data indicates that commercial real estate loan volumes are down, and so are consumer loans. Some politicians point to such figures as evidence that bailed-out banks are not doing their duty to help the economy recover.
But those who like to bash banks might want to hesitate before complaining that banks are not lending enough. After all, this crisis — and the recession that arrived with it — was caused by banks lending too much, at credit standards that were too low.
What would we be saying if, say, JPMorgan’s volume of outstanding option or “pick a pay” ARM’s was rising instead of falling? (You remember those particular ARM’s, don’t you? They are the mortgages that let borrowers pay as little as they wished, with the loan balance rising every month if the minimum amount was paid. Washington Mutual specialized in such loans. There would be far fewer foreclosures if that product had never been invented, and a WaMu branch might still be on a corner near you.)
Overpaid and unrepentant bankers do deserve plenty of criticism. The foreclosure scandal is the latest evidence that banks acted irresponsibly. I suspect that we will eventually find little or no evidence that banks foreclosed on people who deserved to keep their homes. But there is plenty of evidence that banks cut corners in processing paperwork when this mess was being created, and that they did the same in an effort to cover up the problems when the loans went bad. Filing false court papers is serious, and there may be some bank lawyers who deserve to face criminal charges.
For the American economy, there are still plenty of problems. The Labor Department’s monthly household survey found that 1.6 million more people were working in September than had jobs in December 2009, when the recent low in employment was reached.
Not only has that gain been painfully slow — it represents about one-quarter of the jobs lost during the downturn — but so far the gains have been concentrated in two groups — younger workers between 20 and 34 years of age and older workers over 55.
The number of jobs held by workers between 35 and 54 — traditionally the prime working years when people are supporting families — has declined this year. There are now 5.5 million more Americans in that age group than there were 12 years ago, and about 500,000 fewer jobs.
Companies will start hiring, and wanting to borrow money to pay the workers and expand business, when they see demand from customers. There is some evidence that is happening (those who do have jobs are working more hours), but it may take more fiscal stimulus to get the economy moving.
But when — or if — demand does start to pick up, lending could rise quickly.
“Corporate America is in good financial shape,” Mr. Dimon said this week. Many companies that have not borrowed are, he said, “just waiting for more orders.”
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