Bankers Blame Themselves for Many of the Ills of the Industry

In what virtually amounted to a confession of sins, bankers meeting here Monday at their annual convention blamed themselves for much of what ails their industry, admitting that they were too aggressive in real estate lending.

They also predicted in interviews that it could take the industry as long as eight years to resolve severe loan problems in some regions.

“Some of us got greedy,” said Denver L. Hipp, chief executive of Jefferson Security Bank in Shepherdstown, W. Va.

Added James G. Fitzgerald, president of Suburban Bank of Barrington, Ill.: “Do banks have to take responsibility? Absolutely.” Office vacancy rates in some parts of suburban Chicago are running about 30%, Fitzgerald said, which he blames on banks making available too much easy money for developers.

The comments of Hipp and Fitzgerald reflect how heavily real estate woes hang over those attending the annual meeting of the American Bankers Assn., the industry’s main trade group.

As for the cure, there were many suggestions, none of them pleasant. Bankers and regulators said more banks must cut dividends to conserve funds and lay off workers to cut costs. They added that weaker banks must merge with stronger ones and lenders must turn down loans they might have made just a few years ago.

The bad times for bankers was reflected in the fact that convention attendance of 4,500 is down 18% from a year earlier, as some banks chose to save travel expenses. Gone also are some of the elaborate parties that marked conventions during better times.

Satirist Art Buchwald noted the mood change when he said the average age of a commercial banker was 35 when he spoke to the convention 10 years ago. Now it is 75, Buchwald said, even though he was speaking to the same people.

Real estate was one of the most profitable areas of banking in the late 1980s, rich in fees and considered good bets in fast-growing areas such as New England, Florida, California and New York.

Figures presented at the convention by Austin, Tex., bank consultant Alex Sheshunoff showed that domestic real estate loans outstanding have grown to $759 billion from $483 billon in 1986, while commercial and industrial loans have been virtually flat. The trend was even more pronounced in California, where real estate loans nearly doubled to $116 billion from $63.2 billion in that period, while commercial and industrial loans actually declined slightly.

Real estate loans are now blowing up at some banks as borrowers struggle to repay money lent to finance office towers, hotels, shopping centers and other projects.

Thomas G. Labrecque, who takes over next week as chief executive of ailing New York-based Chase Manhattan Corp., said the problem is made worse by the volume of real estate from failed thrifts offered for sale by the federal Resolution Trust Corp. He also cited changes in tax laws in 1986 that discouraged some real estate investing.

“You are going to have a much deeper cycle,” Labrecque said.

Bankers have their own war stories. Raymond Cordani, chief executive of Summit National Bank in Torrington, Conn., has been hit hard by New England’s severe real estate downturn. Loans 90 days or more past due at his bank grew from $1.1 million at the end of last year to $5.1 million on June 30. To make matters worse, Cordani moved in December and has been unable to sell his own former home in the 10 months since.

“No one thought the downturn would come so fast. It hit us like a brick wall,” he said.

Surprisingly, real estate was not mentioned much at industry sessions and speeches, which instead dealt mostly with gripes about laws and regulations. Indeed, Federal Reserve Board Chairman Alan Greenspan--in what became a running joke at seminars and press conferences throughout Monday--chose to speak about check clearing.

One exception was Comptroller of the Currency Robert L. Clarke, who has been accused of cracking down too hard on real estate lending. Clarke reminded bankers at a workshop that his office first became concerned about sloppy real estate lending three years ago. One speech he made on it was mailed to every chief executive his office regulates.

“Some people paid attention to it, but I have to tell you not very many did,” Clarke said.