October 23, 2014

Major bank executive predicts economy will take off in 2015

U.S. Bancorp CEO Richard Davis has been offering some fairly rosy views of the economy, predicting that growth will accelerate sharply next year.

Rising rates key impetus
Rising interest rates are the key impetus that will trigger this change, as consumers and businesses will have significant incentive to borrow before these borrowing costs move even higher, Davis asserted, according to American Banker. Because Minneapolis-based U.S. Bancorp has a knack for consistently generating the results it says it will, the CEO's statements are a bit more credible than they would be otherwise, analysts say.

Earlier this year at the American Banker Regulatory Symposium, Davis asserted that many U.S. businesses have been holding back on using credit because the low-interest rate environment gives them no urgency to borrow, American Banker reported. At the same time, he noted the Federal Reserve Board is coming closer to increasing its borrowing costs.

Rate hike near, says Davis
"It's getting sooner," Davis stated in an interview following the symposium, according to the media outlet. "It's going to happen. And so that's going to be a catalyst ... I think it will be next year things take off."

In terms of how much impact a change in Fed policy would have, he likened its impact on U.S. businesses to the effect that "Cash for Clunkers" had on the nation's consumers, the news source reported. By motivating everyday Americans to buy vehicles sooner rather than later, this program helped bolster automobile sales.

Industry skepticism
While Davis has remained optimistic, some may have a good cause for being skeptical of his rosy views, as U.S. Bancorp reported lukewarm results for the third quarter. The financial institution's income rose to $1.471 billion in the three-month period, or $0.78 per diluted common share, up from $1.468 million, or $0.76 per diluted common share, the same time last year.

Mike Mayo, an analyst at CLSA, spoke to the results during an interview, according to American Banker. He asked why Davis is so optimistic when his company recently reported modest improvements in revenue and loan growth. Mayo asked the U.S. Bancorp CEO about his prediction that the economy will take off in 2015, and Davis was unwavering.

Davis prediction unwavering
"I am going to stick to what I said before, and I think it is next year," he said, the media outlet reported. "And when it does, it happens fast. I don't have any evidence that says otherwise. And I am not responding to the vagaries of two weeks of either 10-year interest rates or stock market variances, I am just going to stick with it."

Only time will tell if Davis' prediction is accurate, but if he is right, now may be a good time for financial institutions to participate in adjustable-rate loan sales. Organizations that are thinking about getting involved with such activities might consider speaking with Garnet Capital Advisors, which has significant experience in this space.