TARP Recipients Not Lending More

Highlights include Wells Fargo & Co. (WFC), JPMorgan Chase & Co. (JPM), Regions Financial Corp. (RF) and Capital One Financial Corp. (COF).

Yesterday, the Treasury released results from its monthly bank lending survey for February with data from the top 21 recipients of TARP funds. The results can be seen here:

http://www.financialstability.gov/docs/surveys/monthly_lending_intermediation_snapshot_041509.pdf

Except for housing lending, banks extended less credit to businesses and consumers in February compared to January. The median decline in total lending was 2% in February, with nine banks reporting an increase in lending and 12 banks reporting a decline.

Housing loans have picked up recently as a result of record low mortgage rates, as we have seen in the recent results/preannouncements of banks like Wells Fargo (WFC), JP Morgan (JPM) and Regions Financial (RF). During the month, residential mortgage originations increased by 35%, mainly due to the surge in refinancing of existing mortgages. Mortgage refinancing increased of 42% and home equity originations increased 18% month-over-month.

Loan origination for other consumer lending products, including auto, student and other consumer loans, decreased by 47% from January to February.

Credit card lending activity also declined slightly, with average loan balances down 1% and new account originations down 3% during the month. The credit card defaults have risen to a record high recently and are expected to increase further. Capital One (COF), yesterday reported that its first quarter credit card charge-offs exceeded 9%.

Due to challenging conditions in the commercial real estate markets, new CRE commitments decreased by 23% during the month. Commercial and industrial (C&I) declined again in February, reportedly due to weakening demand for loans by businesses.

The report shows that government's efforts to get these banks more is not having desired results. The Treasury attributed weaker lending to the decline in demand resulting from low consumer confidence, rising unemployment and decrease in U.S. Exports (resulting from global slowdown).

Though we now see some signs of deceleration in the pace of economic slowdown, lower lending activity at the banks (coupled with other factors) will force the businesses and the consumers to further cut back on their spending, which may ultimately result in prolonging the recession.