Local bankers: Federal aid may bring benefits to area

Nov 26, 2008 (The Leader-Telegram - McClatchy-Tribune Information Services via COMTEX) -- LEH | Quote | Chart | News | PowerRating -- A group of area and state bank leaders said Tuesday that the industry is healthy in the Chippewa Valley but added that a new federal program to increase their capital may benefit some institutions.

The Capital Purchase Program within the retooled Troubled Assets Relief Program provides capital for healthy banks. However, participating institutions face increased regulation, and the program comes with a hefty price tag, the bankers said during a meeting with Leader-Telegram editors.

Although he said the program is not for everyone, Russell Weyers, president of Racine-based Johnson Bank, said "bailout plan" is a misnomer because banks eventually repay the money. Weyers is chairman of the board of the Wisconsin Bankers Association.

Other bank presidents at the discussion were Dean Olson of Charter Bank and Daniel Riebe of Peoples Bank of Wisconsin, both of Eau Claire, and Greg LeGare of United Bancorporation in Osseo. Marty Reinhart, a regional president for Associated Bank in Wausau, and Kurt Bauer and Eric Skrum, president and communications director, respectively, for the Wisconsin Bankers Association, rounded out the group.

The bankers emphasized the difference between investment banks such as Lehman Bros., which are regulated by the U.S. Securities and Exchange Commission, and depository banks. The latter all are insured by the Federal Deposit Insurance Corp. and highly regulated. Johnson Bank will pay a total of $2.5 million in FDIC fees this year companywide and anticipates paying $6.5 million in 2009, Weyers said.

Community banks had little to do with the mortgage crisis, panel members said, which was caused by other factors based on the "principle that housing values will always appreciate," Bauer said.

Deregulation of the mortgage industry allowed more people to buy homes but, Riebe said, the pendulum swung too far. An influx of mortgages also led to an increase in home prices, a bubble that has since burst. Johnson Bank found that every home loan it declined in the first half of 2007 was approved elsewhere, Weyers said.

Olson said a period of unlimited access to credit through credit cards and other avenues also played a key role in consumers' debt burden.

Although foreclosures are on the rise, bank leaders Tuesday encouraged borrowers to meet with their financial institutions to try to work out solutions. Several of the presidents agreed that a majority of recent foreclosures in this region are caused by divorce or job loss.

"There's a myth that banks want to foreclose," LeGare said.

Said Weyers: "There are more (foreclosures) than two years ago, but they're not lining up at the door."

The Quarterly Banking Profile for the third quarter released Tuesday by the FDIC reported that commercial banks and savings institutions insured by the agency had a net income of $1.7 billion, down 94 percent from the year-ago period. The industry's return on assets, or ROA, fell to 0.05 percent from 0.92 percent. However, at community banks -- those with assets of less than $1 billion -- ROA fell less sharply, from 0.97 percent in the third quarter of 2007 to 0.72 percent.

Olson reported that loans were up at Charter Bank from the year-ago period, and Weyers stressed the continued importance of community banks in rural areas.

Nevertheless, the economy has had an effect on many banks, which have seen their sources for revenue contract. Still, area bank presidents said they have money to lend. They also called for a push in financial literacy to help consumers better manage their finances.

"Every bank is as good or as bad as its market," Weyers said. "We're not saying we don't have problems, but we're saying they're manageable."

Marlaire, the Leader-Telegram's business editor, can be reached at 833-9215, 800-236-7077 or liam. marlaire@ecpc.com.

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