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Special
publisher's profile: Banking
Virginia's top banking
officials on the economy, the banking industry and doing
business in Virginia.
The major banks in Virginia
are a driving force in the state’s economy and
a major influence on the regions they serve. We recently
interviewed four top banking officials in Virginia -
James C. Cherry (Wachovia, N.A.); G.S. "Sandy"
Fitz-Hugh (Virginia Bank of America); C.T. Hill
(SunTrust Banks); Barry Fitzpatrick (First
Virginia Bank); to find out their views on the economy,
technology and the banking industry.
With
interest and mortgage rates at an all-time low, banks
have been very active in the mortgage refinance market.
How concerned are you about a real estate "bubble?"
where housing prices soar beyond their intrinsic value.
Could banks be caught in a squeeze if housing prices
fall and banks are over-extended in real estate?
James C. Cherry (CEO, Mid-Atlantic
Bank, Wachovia, N.A.): I think our housing (mortgage
refinancing) business is up about 15 percent, and there
doesn't seem to be anything right now suggesting deflation
in the housing market on a large scale. Now you do see
deflation in some segments, like West Virginia, where
we've seen a significant loss of jobs in the coal industry.
In areas like that, you're bound to see some deflation
in housing prices.
However, you may see a slowing
in the refinance market, but it's not because people
think rates are going to go up. It's because at some
point the market is saturated. Everyone has refinanced
at a better, lower rate and our folks were predicting
that refinance volumes would be twenty to thirty percent
below what they were last year. But then I asked them
to tell me what's going on in January and our volumes
were equal to what they were a year ago. Now maybe that's
because we have so many more people coming to us, but
we still see the refinance market as very strong. Rates
are still very modest and there is nothing right now
that seems to suggest a dramatic change in the rates.
The downward opportunity doesn't seem to be as great
as the upward risk.
Barry Fitzpatrick (Chairman,
President, CEO, First Virginia Bank, N.A.): Any
institution involved in lending can be caught in a squeeze
if its short-term strategy overshadows the prudent management
steps that must be taken over the long haul. Lenders
must carefully evaluate the future market risks versus
the current returns whenever there is a preponderance
of opportunity in one market segment. At First Virginia,
we have done this by maintaining an exceptionally high
capital level, and concentrating on building total financial
relationships with local businesses and consumers. Our
lending strategy focuses on diversified lending opportunities
with both flexibility and liquidity, such as automobiles,
home equity and business loans and lines.
G.S. "Sandy" Fitz-Hugh,
(President, Virginia Bank of America): I think it
depends on two things. Number one is consumer confidence.
That is something that needs to be strong, and could
be jeopardized depending on the uncertainties we are
facing - what with the war in Iraq and everything else.
If there is a war with Iraq and if it's short term,
it removes the cloud of uncertainty that the consumer
and businesses are going through.
And the second thing is
the consumer spending and the disposable income that
the consumer has. If you look at the last couple of
years, consumer disposable income increased because
taxes have gone down and people have done a lot of refinancing.
Many people have reduced their house payment by 20%.
At some point that cannot continue, then you have to
wonder what is going to happen to the housing market,
but the indications are right now that it will remain
strong. Frankly I think it is the one thing that has
held the economy up for the last year or so when other
things like business spending has been down while consumer
spending has been up. We're cautious but not concerned.
C.T. Hill (Chairman, CEO, SunTrust
Banks, Inc.): We absolutely do not worry about the
so-called "housing bubble." There is no question
that in the last 24 months we've seen a lot of activity
in the consumer sector in both housing and automotive.
The production is coming out of
mortgage refinancing the past several months and January
was another good month. Down from all-time highs but
still a very good month. When you get interest rates
at these (low) levels, and there is a reason the Fed
has the rates at these levels, you get a lot of economic
activity, particularly out of consumers.
Our mortgage activity has been
strong and we think the housing market is pretty balanced,
compared to where it had been at certain times in the
past. We think the commercial real estate sector in
our footprint is balanced. We don't have the extended
over-building that we did in '91 and '92. So we find
there is much more balance in the overall real estate
sector than in the past. On the residential side, projects
tend to be more phased than they were in years past,
so there is less downside if something slows down.
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