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Economists Forecast Financial Crisis to
Maintain Grip Through 2009

Industry experts offer banks and credit unions advice for
weathering the storm and reveal opportunities ahead.

IWithout a crystal ball, nobody knows for sure what new twists and turns the global financial crisis will bring in 2009. Fortunately, experts on the economy have weighed in with forecasts that may help financial institutions weather the storm. Delivering Value elicited predictions and advice from two noted experts: Chris Nichols, president and CEO of Banc Investment Group LLC, the capital markets arm of Pacific Coast Bankers Bancshares, and Steven Rick, a senior economist with Credit Union National Association (CUNA). Their opinions may help provide your bank or credit union with a compass as you navigate a course for the coming year.

Nichols is blunt. “The economy will continue to significantly deteriorate in 2009,” he says. “This will permeate banks’ balance sheets and financial statements, making it a very challenging year.” However, he believes banks with quality management teams can rise to the top if they manage credit exposure and focus on gathering non-interest-sensitive deposits. “Banks with the proper reserves, cost structure and asset-liability position will do exceedingly well,” he says.

Rick concurs. “The U.S. economy will go through a recession in the first half of 2009, the duration of which will be longer than the past two, due to greater imbalances in both the housing and debt sectors.” He also cites the climbing unemployment rate. Yet, he sees a silver lining. “Credit unions are well-positioned because they don’t need to worry about stockholders, “Rick says. “Their focus on building net worth provides a cushion in tough times.”
What our government...
Nichols believes the government’s efforts to jump-start the economy will help soften the blow. “A recovery won’t happen as fast as the media wants,” he says. “But we’re moving at light speed compared with other countries. What our government has accomplished in several months has taken other countries several years.”

The Emergency Economic Stabilization Act of 2008, which established the Troubled Assets Relief Program (TARP), provides financial institutions with access to inexpensive capital. And boosting capital and liquidity will be important strategic initiatives in the year ahead. According to a forecasting survey by The Wall Street Journal, government action is a reason some economists see the landscape eventually improving; nearly two-thirds of respondents said TARP is helping.1 “It makes the industry more efficient at gathering deposits and assuaging account holder fears,” says Nichols.

Other promising news comes from a survey conducted in October by the Association of National Advertisers (ANA), which found that, despite the financial squeeze, marketing budgets are showing surprising signs of bullish resilience. BtoB: The Magazine for Marketing Strategists reports 27 percent of advertisers and agency executives polled by the ANA planned to increase their budgets in response to the economic downturn, while seven percent were making no changes.2 Of the remaining 66 percent, half were reallocating marketing dollars, and the rest were cutting budgets. That same article referenced a survey conducted by the research firm Marketing Sherpa, which found nearly half (48 percent) of larger business-to-business marketers planned to invest marketing dollars specifically in Web 2.0 applications. (See bullet five in the accompanying article, “Top 10 Strategies for Weathering the Storm.Also see our Solution Spotlight.)

CUNA’s Rick sees growth opportunities for financial institutions, despite the coming year’s grim economic forecast. “This is a chance to scan your market area and pick up branch locations,” he offers by way of example. “While others are contracting, this is the time to be aggressive and expand.”
Nichols agrees. “Although 2009 will present its challenges, it actually offers more opportunities for quality institutions.”