In what many banks called a “$12 billion-a-year gift to retailers,” a deal to slash fees that retailers pay banks when shoppers use a debit card got passed by Congress last year as part of President Barack Obama’s financial overhaul package.
In response, Atlanta-based SunTrust Banks Inc., among a handful of other banks, introduced $4 and $5 debit cards fees for checking-account customers.
In an interview with Tennessean finance reporter Bobby Allyn, regional president and CEO of SunTrust, Rob McNeilly, said the bank had no choice but to look for other ways to make up for lost profits as the rules changed for how banks operate.
He said the decision was carefully vetted through customer surveys, so he doesn’t expect a vigorous backlash from consumers.
Meanwhile, SunTrust’s stock is down nearly 40 percent for the year through Thursday’s close on Wall Street. SunTrust opened the year with shares trading just shy of $30. The stock closed Thursday at $17.71 per share on the New York Stock Exchange.
Many bank stocks have been battered amid skittishness among investors about the national economy and weak consumer and business loan demand.
In March, SunTrust did pay back the $4.85 billion in federal bailout money it had received under the Troubled Asset Relief Program at the height of the U.S. financial meltdown.
The bank’s loan volumes are up slightly from a year ago, even as regulators pore over all financial institutions’ books with increased toughness these days as the industry tries to recover.
Small business, commercial and private wealth lending have been SunTrust’s recent focus, McNeilly said. Here’s what he had to say on other topics — ranging from the housing market’s condition to local competition among lenders.
What can you say about the regional housing market’s recovery?
In the Southeast, home prices never increased as much as they did in other parts of the country during the boom. So when the bubble popped, it, too, wasn’t as drastic as it could have been. And the Southeast continues to have strong population and job growth. Compared to the rest of the country, the Southeast looks pretty strong right now.
SunTrust and other regional banks are testing out debit card fees. Can you comment on the timing of these programs?
It’s a result of one revenue stream being diminished, the interchange fee (merchant fee). As an organization or a business, if you’re going to be taking (in) less revenue, you can’t have the same expense costs. So, banks are getting creative.
Do you fear that the new debit card fees will hurt lower-income customers?
Our clients can choose whether or not they want to use debit cards. If you use it as an ATM card, there’s no charge. We will have options available so our clients can minimize or avoid incurring fees.
Nashville is one of the leading regional banking hubs in the country. Is it hard to compete in this environment?
When you consider Rutherford County along with the Nashville area, there are about 65 bank (flagship operations). That’s almost double the flagship banks in Raleigh, N.C., which is a comparable market. When you have this many providers, you have to ask: How many is enough?
I have a friend in the contracting business, and he tells me about bidding on jobs with almost no profit margin, and the person walks away. How did anyone bid lower than that? That same thing happens in our business with competitors doing some serious risk-taking to stay ahead.
Where has SunTrust seen the greatest opportunities for loan growth?
The SBA (U.S. Small Business Administration) recently changed some guidelines to increase loan amounts to clients. We saw this as an opportunity, and last year, we were the (top) lender in the Nashville marketplace for SBA. One of the loans we made was for $3.4 million, which wouldn’t have been allowed under old rules.
But whether it’s millions or $400,000, the underwriting is the same and credit-worthy borrowers will get the money they need. But there is a lot of scrutiny.
You need to remember one thing: We’re lending our depositors’ money. And 100 percent of them expect that money back, so we have to be almost perfect in our lending decisions.
Some regional banks in Middle Tennessee have stepped up financing for multifamily projects. Has SunTrust contributed to this upswing in local multifamily lending?
Our commercial real estate world is not limited to multifamily. We’ve been involved in many high-profile projects in the area, including office buildings, retail centers, condo projects. But with the number of banks competing for the same lending opportunities, some banks are willing to structure loans differently. We tend to take a more conservative view. There’s only so much demand with an oversupply.
What explains your stock’s volatility and the recent wild swings on Wall Street, particularly with other financial industry stocks?
We feel like we are in a low-growth environment. We, as an industry, have to adjust to the fact that top-line revenue is being cut. So, if we continue to spend at the same pace, earnings will continue to drop.
More regulatory scrutiny typically means more costs. It’s not like Uncle Sam is handing us a million dollars to handle compliance expenses. We’re all waiting for normalized earnings.
Do you think public opinion still treats banks with heavy skepticism?
In the national press, banks have taken a hit to their reputation. One of the things we’re trying to do is overcome that perception with a dose of reality.
Our employees are volunteering with United Way and other organizations and getting paid for up to 16 hours of their volunteer work. We believe in the quality of life in Nashville, and we hope that can translate into giving back to the community.
Bank of America announced on Friday plans to cut 3,500 jobs nationwide. What does this say of the industry?
From an industry standpoint, when your topline revenue growth is challenged, you tend to look for places to cut cost. Let’s say revenue is growing 5 percent but expenses are at 6 percent. That’s sort of like the predicament we’re in.
