Even before the Federal Reserve cut a key interest rate Wednesday from 2 percent to 1.5 percent, Maine’s financial institutions were liquid and ready to lend, area bank and credit union officials said.
But some of their would-be borrowers may not know that — and area bankers hope that the move by the Fed will assuage anxieties about the financial markets.
“We’re hoping that this will allay some concerns and anxiety that some customers have,” said Suzanne Brightbill of Camden National Bank. “They see the Fed’s willingness to reduce the rate as a sign that inflation isn’t rampant.”
In a jittery national economy that seems to be ricocheting from one financial catastrophe to another, signs and perceptions are very important, bankers say.
That’s true even in Maine, which was not as involved in the subprime mortgage morass as many other states and is in good shape in terms of available credit, according to Jon Paradise of the Maine Credit Union League.
“There is a perception — and how could you not have that perception with what’s going on now — that nobody’s lending money,” he said. “But there’s still plenty of money to lend.”
He said he hasn’t heard of many Maine businesses not being able to make payroll due to a lack of a line of credit, as is the case in other places around the country and globe.
Still, the Fed had to act, according to Paradise.
“The valve of credit has been shut off,” Paradise said. “The perception was, they had to do something. This was the immediate emergency step that they took.”
Yellow Light Breen of Bangor Savings Bank said the rate cut will have little actual impact on banking in Maine.
“What the Federal Reserve and all the other central banks around the world are trying to do is use every tool at their disposal to grease the skids, to try to shake loose the national and international credit markets, which have been frozen for the last month or so,” Breen said. “But for local banks, the impacts will mostly be limited.”
The key rate lowered Wednesday — the federal funds rate — is just one of many factors that local banks consider as they set their interest rates for loans and certificates of deposit.
Paradise said the rate cut may “emotionally” be what people need right now to encourage them to get back to business as usual.
“There’s just so much anxiety. You look at it night after night. You read about it in the morning. It’s hard to escape it,” the credit union official said. “But our message is, we’re stronger than ever.”
On 10/9/08 at 2:20 PM,
mainbad wrote:
Repeated separate thumbs down will cause comment to be hidden
I can't believe tha Democraft scare tactics such as Obama has been using to force the bailout of his Fannie buddies. To think that most businesses routinely borrow to meet their payrolls is a major distortion. He is typical smoke and mirrors. I remember credit lines dried up in 1990 after a lot of car dealers had floor plan amounts that exceeded their asset value. This coincided with a real estate market readjusment. It seems most members of congress have a memory of convienence and dsitort the facts. McCain is right. Strenghening the values is important, however, values inflated by lenders willing to lend to anyone were the root cause of the collapse of values and value.
On 10/9/08 at 6:04 PM,
SmokyMtnMoneyMan wrote:
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Consider yourselves lucky. The non-impact of the subprime mortgage fiasco in Maine has sheltered your from what many other parts of the country are dealing wigh. I have been involved in commercial finance for 10+ years and trust me.... the rest of the country can not borrow money wether its for equipment, materials or working capital.
As reported http://www.leasingnews.org/archives/October%202008/10-06-08.htm#ge
Last week GE told the media for ten months it has been unable to sell its $30 billion U.S. private-label credit portfolio.
This news is very serious not only to GE, but to the leasing industry.
What position to other leasing company portfolio’s have in the open marketplace?
On Friday, General Electric, the second-biggest U.S. company by market value and the largest leasing company, according to Monitor Magazine ($135.1 billion ), lost 15 percent to $21.57, the lowest since October 1997. GE sold shares on Oct. 2 for 9.2 percent less than the previous day's closing price. The company raised additional funds by selling $3 billion of preferred shares that pay a 10 percent annual dividend to Warren Buffett's Berkshire Hathaway Inc.
As to the direction of GE Capital, there seemed to be several different interpretations, but it now appears they were all basically correct as the confusion appears within GE management itself:
“I am an employee of GE Capital and our management has encouraged us to go after new business. However, things keep changing by the day at GE. The problem is that as the applications are coming in and being approved neither us or management know for sure what our pricing will be and when we will finally able to lock in price for our customers. Therefore GE Capital is somewhere in limbo. There seems to be some plans to work things out at a segment level and get temporary pricing for preferred referral source's only. But, management can't seem to commit to anything at the moment.”
“With GE's money cost on the rise who knows what price they will come back with. It may be so outrageously high that we can't compete anyway. At a local level, GE management seems to be taking the ‘Keep you fingers crossed’ approach and has given no clear direction on how to manage the situation.”
Add to this the cost to insure $10 million of GE debt for five years with credit-default swaps rose to $626, a year. The cost of annually insuring $10 million of GE Capital debt over a five-year period with credit default swaps rose to 626 basis points, $626,000 a year, up from 562 basis points late yesterday. That's nearly a five-fold increase over the past six months. By comparison, in April 2008 following the release of GE's first quarter earnings, five-year credit default swaps on GE Capital stood at 131 basis points, meaning it cost $131,000 a year to protect $10 million of GE debt. It is below a peak above $700,000 prior to the news of Buffett's purchase of $3 billion, including warrants and other “gimmes.” Costs are up; borrowing from banks is not what they expected to do.
It also has been selling off several units, including GE Healthcare.
It appears the divisions financing their products are lower on the list of units for sale. CEO Jeffrey Immelt in May told investors he wanted to pare finance divisions at GE to 40 percent of profit, down from about half, executing a basic strategy he laid out in 2002.
He did tell the press as recently as September 25 he did not want to split off GE Capital.
Former GE CEO Jack Welch blames current CEO Jeffrey Immelt for not cutting back more when he saw the train coming.
From a GE Capital employee:
“While this is sad, it is not unexpected that GE management is flailing in this time of internal crisis. I blame the pervasive, ladder-climbing leadership culture that GE fosters. The GE culture is described perfectly in this blog:”
