BB&T stays steady throughout banking crisis, executive says
While many banks favored a federal bailout last September, BB&T Corp. argued against federal aid and accepted money only under severe pressure from government regulators, the bank’s chairman said in a recent speech at Washington and Lee University.
John A. Allison, who will serve as the bank’s chairman through 2009, retired Dec. 31 from his 19-year term as BB&T’s chief executive officer.
Allison said his bank accepted about $3 billion in government aid from the Troubled Assets Relief Program (TARP) because it didn’t want to give competitors an advantage as other banks accepted billions of dollars.
“We did not want the money,” Allison said during a question-and-answer session that followed his speech Jan 28.“We were very opposed to the TARP program, but we practically had no choice.”
But Allison believes his company has put the money to good use. Of the 13 largest recipients of government money, only BB&T, SunTrust and U.S. Bancorp saw loan volumes increase.
BB&T’s loan volume increased by about 2 percent during the fourth quarter compared with the third quarter. Bancorp reported a 3.9 percent increase in loans while SunTrust reported a 0.2 percent increase.
The government’s cash infusion came in mid-October, about a month after Lehman Brothers filed for bankruptcy, touching off fears that other financial institutions might go under as well.
Allison said the Federal Reserve’s actions over the last decade were partially responsible for the current crisis.
“People in business and government were divorced from reality,” he said. “Interest rates were kept way too low by [Alan] Greenspan to evade the market cycle.”
Allison went on to say that if Greenspan, the long-time chairman of the Fed who retired three years ago, had let the 2001 recession run its normal course, the housing bubble might never have grown as large or caused so much economic turmoil.
He also said the efforts by President Bill Clinton and Democrats in Congress during the 1990s to dramatically increase home ownership forced Fannie Mae and Freddie Mac – the semi-public institutions that are the nation’s largest mortgage lenders – to issue more subprime loans than they should have.
Allison said his company’s ability to avoid massive losses on subprime mortgages is now allowing the bank to take business from its competitors.
“We are lending,” he said. “We see an opportunity for taking business from our competitors because we have fewer challenges. We are having a very large market share move right now.”
Allison acknowledged that his company hadn’t been immune to the problems of subprime mortgages and the increasing inability of some customers to pay off mounting credit card bills.
“We’ve had to fire loan officers,” he said. “But we didn’t fire them because they made a bad loan. We fired the ones who tried to cover up the bad loans they had made instead of taking responsibility for it.”
The company reported Jan. 22 fourth quarter earnings of $284 million, or 51 cents per share, down 31 percent from earnings in the same quarter last year. But even those smaller earnings far outstripped the results reported in recent days by other companies.
JP Morgan Chase reported that earnings in the fourth quarter dropped 76 percent compared to last year. Citigroup, Wells Fargo and Bank of America all posted losses exceeding $1 billion.
When Allison took over BB&T in 1989, the company had 219 branches in the Carolinas. Now the company has 1,500 branches in 11 states, including Virginia. He said his company’s caution in the boom years allows it to benefit now, at a time when other companies are taking losses.
“We tend to do well in tough economic times,” he said.
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