The fast-approaching deadline to raise the U.S. debt ceiling coupled with the government shutdown is making Charlotte-area businesses that are already reluctant to borrow even more so, a top Wells Fargo executive based in Charlotte said Monday.
Carlos Evans, who oversees Eastern commercial banking for Wells Fargo, said the fight over the shutdown and the implications it could have for avoiding a default on U.S. debt are weighing on the minds of businesses in Charlotte and elsewhere.
“It’s the front-and-center thing now,” he said.
Businesses were already feeling uncertain before the shutdown battle erupted, he said.
“This is just one more dark cloud that’s been thrown out on top of what seems like a never-ending string of dark clouds, starting with, a couple of years ago, the crisis in Greece,” he said. “Sixty days ago it was Syria.”
As uncertainty rises among businesses, CEOs are less likely to borrow or spend the cash that they saved in recent years while they worried about the future of the economy, he said.
“What they’re doing right now is counter to their persona,” he said. “They don’t like to sit on cash. What they really like to do is reinvest.”
The lack of businesses spending and reinvesting is holding back job-creation in Charlotte. In August, North Carolina’s unemployment rate was 8.7 percent, making it the sixth-highest in the nation along with Georgia and Washington, D.C.
The Observer talked with Evans about the debt ceiling, the shutdown and the disinterest in borrowing among middle-market companies, those with annual sales from $10 million to $1 billion. Evans said there are roughly 1,000 middle-market companies in the Charlotte area.
His comments have been edited for brevity and clarity.
Q. What do you think should be done about the debt ceiling and shutdown?
A. I think they need to do what (Thomas) Jefferson and (John) Adams and (George) Washington did when the country was founded: They need to find a way to cross the aisle and resolve their differences and make a compromise in the interest of the country, both sides.
Q. What worries you the most about the debt ceiling and shutdown issues?
A. The longer this goes on, the greater the impact on GDP. And if it goes on long enough, it will in and of itself tilt us into a recession. That’s just the math.
Q. You said businesses are just sitting on stockpiles of cash. Can you be more specific?
A. Corporate America’s never had more cash, and corporate cash as a percentage of assets is the highest level it’s ever been. Corporate debt as a percentage of assets is the lowest level it has ever been. There are some people who estimate that there is $2.4 trillion in cash sitting on the sidelines.
All banks, Wells Fargo included, are sitting on tremendous pools of liquidity that would best be served if they were reinvested in loans. Driving loan growth is one of the most important things that we need to do as a bank to drive our earnings, and I would think that to be the case at all the banks.
Q. For how long have companies been holding on to this excess cash?
A. A couple of years. It’s almost like every time you sort of begin to feel like confidence is creeping in, something pops up. At some point, people just start ignoring the bad news. I was beginning to feel like we were approaching the point in which some of this cash would come off the sidelines. To go rehire, they have to feel pretty confident, and right now there just hasn’t been enough confidence to push them over that line.
Q. On a scale of one to 10, with one being “no demand,” how would you describe middle-market companies’ appetite for loans?
A. I would say it’s about three.
Q. For how long has the appetite been falling?
Since the fourth quarter. We had a fair amount of activity in the second half of 2012. But ... we’re not talking about robust loan growth that typically accompanies the economy coming out of a recession. What that’s translating into is less-than-robust job growth than you normally have coming out of a recession.
A. Are banks making loan terms favorable to businesses to coax them to borrow?
They are very favorable. I wouldn’t say it’s at the level of competitiveness that existing in ‘07, when things got really aggressive and, some might say, out of hand. But it’s moving in that direction. It’s a very competitive market out there. It’s a borrower’s market, which is what you would expect with cash levels at all-time highs.