Bank of America (Stock Quote: BAC) is again increasing its commitment to lending to small and medium-sized businesses, a top executive has told TheStreet, answering critics who knocked the top institutions for sitting on taxpayer bailout cash instead of helping ease the Great Recession. The bank's response has already made believers out of some of the greatest skeptics, but David C. Darnell, president of Global Commercial Banking for Bank of America Merrill Lynch (BAC) - Get Report , says there's more to come.
The largest of U.S. banks, Bank of America reported $2.4 trillion in assets at the end of the second quarter. Late last year, amid industrywide criticism, it announced 2010 would see an increase in lending to small- and medium-sized businesses by at least $5 billion. Last month, it announced having loaned $45.4 billion to these businesses during the first half of the year, an increase of nearly $9 billion over the same period last year. Because the bank doesn't release similar figures for the years before it accepted TARP funds and disclosure was mandated, it's difficult to gauge how impressed to be.
Bank of America isn't alone in pledging increased funding for small- and medium-sized businesses.
Chase, the consumer and commercial banking arm of business of JPMorgan Chase (JPM) - Get Report (Stock Quote: JPM), has pledged a $4 billion increase this year in lending to small businesses (which it defines as having annual sales of less than $20 million) to a total of $10 billion. Wells Fargo (WFC) - Get Report announced plans to loan as much as $16 billion this year to businesses with less than $20 million in revenue, an increase of $3 billion over last year.
But the bank also recently announced it will provide $10 million in grants to nonprofit lenders to leverage funds from the U.S. Small Business Administration and the U.S. Department of Agriculture for small and rural businesses. The grants, for use as loan loss reserves, could unlock as much as $100 million in capital.
Among the areas Darnell oversees for the bank are business banking, commercial real estate banking, health care, institutions and government banking and business capital lending. He spoke to TheStreet about the economy, small-business lending and the upcoming anniversary of the Merrill Lynch merger.
What is your assessment of current economic conditions?
Darnell: I think we can all see that so far the economy is not growing at a pace that we would all like to be seeing. I think it's reflected in business demand for credit, which is down.
And the general economic trends are certainly less than we would expect at this stage of the cycle. I think we are going to be in this economic environment for at least the near future, and that will put continued pressure on our customers' ability to expand.
How is Bank of America addressing the small- and medium-sized business market -- those with less than $50 million in annual revenues -- given the state of the economy?
Darnell: Small businesses have been more negatively impacted than other segments given the length and breadth of the down cycle. We do business with over 4 million small businesses, so it is a very important client segment to us and we have been very focused on it.
As we thought about how we can best have an impact, we looked at key areas. First is making credit available. Second is, as we talk to small businesses, they have said, "Yes, having credit available is important, but what is really more important is our need for top-line growth.' Small businesses need more business. The third area is using our resources to leverage other sources of capital that are available, some of which is government sponsored.
From 2004-07, when the economy was robust, there was a lot of demand for credit as companies were expanding. But, as we went into this down cycle, we certainly saw a reduced demand for credit as companies were deleveraging and building cash and liquidity. Now that we are working toward a recovery, supporting businesses as they expand and drive more employment, we are really focused on making every prudent loan that we can.
Given that small-business demand for credit has been lower since the recession, how do you expect to continue growth in this area?
Darnell: As existing credit comes up for renewal, we are very focused on making sure we are renewing and supporting clients every way we can.
With new originations, it is through outreach. The opportunity to attract new clients is helped by the fact we have a referral relationship with Merrill Lynch Financial Advisors. They have referred several thousand opportunities for us over the past year or so, and we are closing an increasing percentage of those.
Under your watch, Bank of America has also focused more on "specialized industries," a group within Commercial Banking that handles health care institutions, higher education, governments and nonprofits. What is being done differently?
Darnell: We do business with 150,000 commercial clients across a lot of different industries. When you look at opportunities to deepen and expand relationships among that client base, there are tremendous opportunities to grow revenue.
We have always had a very strong business focus on health care and state and local government. Before 2007, we did that business within regions; in 2007, we decided to pull that business into a national approach.
We felt that those biz segments were so important to our company that we wanted to bring them together and give a lot of focus to product and capability. We have government teams organized throughout the country and we have health care teams throughout the country. We have that level of segmentation to make sure we have our top talent and top resources focused on these business segments.
Look at health care. When you are dealing with hospitals and large physician practices, they have specialized treasury management in terms of how they collect receivables and disburse cash payables. We have developed products that meet those specialized needs. In terms of government, a huge opportunity has been to connect with Merrill Lynch's strong capability in municipal finance. The opportunity to combine that long history of success in municipal finance with our extensive client base really gives us a unique opportunity. We have our credit and lending capacity and we have expanded treasury management capabilities.
September will mark the second anniversary of the merger with Merrill Lynch. Your thoughts?
Darnell: The integration of Merrill Lynch has really been a game changer for our commercial business. It gives us the opportunity to serve a client with their credit needs and also to provide them access to equity capital markets should they have that need, or M&A capability. I've been in this business 31 years and, as a commercial banker, I've been waiting for this, to have such broadbased capability.
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