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Banks in Southeast tightened lending amid bailout

Despite billions in federal bailout dollars intended to ease the credit crunch, banks in the Southeast tightened their standards for lending money even more during mid November and December, according to a Federal Reserve report Wednesday.

"Lending standards have been raised and loan covenants strengthened, making it harder for some banks to find customers with financial positions strong enough to qualify for loans,'' the Fed reported. "Worsening economic conditions caused banks to restrict lending to specific industries.''

Hardest hit by the worsening credit squeeze: businesses connected to the housing and automobile industries and, in general, new commercial projects shopping for a loan.

Those insights, and an overall sobering assessment of the region's economic health were included in the latest installment of the Fed's "Beige Book,'' a compilation of anecdotal reports from businesses across the nation.

The Fed's Atlanta-based Sixth District, which includes Florida, witnessed weak economic conditions through December with dismal auto sales and retailers reporting holiday sales near or below year-ago levels. Industries throughout the area reported additional layoffs and reduced hours for employees.

In the glass half-full category: home inventories fell in Florida and Georgia (thanks to the continued pullback on new construction), lower gas prices helped tourism and manufacturers are paying less for raw materials.

Here's a snapshot of the Fed's findings for this district:

Banking and finance

So much for a lending stimulus. The Fed indicated "most banking contacts'' alluded to tightening standards and said they were focused on serving existing customers instead of taking on new commercial projects.

So far, the federal government has spent or pledged $350-billion toward bailing out troubled financial institutions and investing in healthier banks in a bid to spur lending. Before releasing more money, some in Congress are pushing for guarantees from banks that more federal funds will translate into more business and personal loans.

Consumer spending

"Contacts said sales of luxury and big-ticket items were particularly weak, while apparel sales also struggled.''

Discount stores generally fared better.

Weakness is expected to persist short-term. Plus, some businesses said they may have to close some stores because they're unable to finance inventory purchases.

Tourism

A mixed bag.

"Florida appeared to benefit from the usual influx of winter residents, but contacts report that overall visits to the state were below year-ago levels. Nonetheless, aggressive promotions and cheaper gasoline prices appeared to boost travel in to several Florida destinations.''

Real estate and construction

New and existing home sales were weak through December with most contacts reporting sales "down significantly compared with the already low levels of a year earlier.''

Foreclosures continue to exert downward pressure on home prices.

More projects were canceled or postponed and more retail space is expected to become available, softening rents.

Employment and prices

"Numerous accounts describing hiring freezes, layoffs and reduced hours in December. Weakness was fairly widespread.''

Despite expectations that prices for raw materials and goods were expected to continue declining, some businesses said profit margins were falling because they had to discount their own prices.

Manufacturing and transportation

New orders running below year-ago levels. Export orders also declined, in sharp contrast from earlier in 2008.

Transportation companies cited weak freight demand and excess shipping capacity November and December. Shipments of retail, automotive and construction-related goods all sharply down; coal and mineral shipments posted small gains.

Jeff Harrington can be reached at jharrington@sptimes.com or (727) 893-8242.

Banks in Southeast tightened lending amid bailout 01/14/09 [Last modified: Wednesday, January 14, 2009 5:34pm]
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