Credit crunch has banks hunkering down, uneasy

A global credit crisis intensified Wednesday as some short-term lending rates spiked to new records, leaving banks with less money to dole out and more worried customers.

In Cincinnati, consumer goods giant Procter & Gamble's CEO warned that small and mid-sized suppliers can't find enough money to run their businesses. From Paris, U.S. Energy Secretary Samuel Bodman said it will be harder to find financing to build new nuclear plants worldwide.

And from his perch in St. Petersburg as area president of Whitney Bank, David Feaster finds he has to just say no more often.

Not to borrowers with whom Whitney has existing loans or other relationships, Feaster said.

"But if a developer wants to buy a piece of land — (an applicant) with no relationship — we don't need that (loan) right now.''

Credit markets have seized up in large part because banks are balking at lending to each other amid heightened fears that more banks will fail. Five banks in the United States and Europe have been rescued by government intervention over the past week.

"Some banks are not lending and some banks are. But those banks that are tight on deposits are not making the loans,'' said Ben Bishop, chairman of Jacksonville investment banker Allen C. Ewing & Co. "You may make your customers mad. Maybe you lose them. ... In a time like this, the banks absolutely have to think about survival.''

Some Florida community banks, even those not directly involved in making subprime mortgage loans at the root of the bad debt glut, got caught in a cash squeeze because of competition, Ewing said.

When Wachovia Corp., among others, hiked CD interest rates to draw deposits, it took money out of some smaller banks. Then came this week's spike in rates that banks charge each other for loans.

The squeeze is leaving banks customers queasy as well.

Whitney Bank's Feaster cites an unprecedented "discomfort'' level with customers questioning which banks are going to survive and what will happen to their money.

"We had one customer, a law firm, talk about how they might just take some cash and leave it in their vault,'' he said.

A dry-up in capital has left some high-rollers, like consummate dealmaker Barry Diller, feeling rather lucky.

In late August, St. Petersburg's HSN and two other spinoff companies of Diller's IAC/InterActive Corp. borrowed $2-billion.

"Some of our advisers said to us, 'Wait a few weeks,' and we said, 'We're not waiting an hour,' " Diller told the Associated Press. "And that was wise, because if we had tried to finance the spin transactions now we'd be frozen. We'd have no chance of doing it."

Information from Times wires was used in this report. Jeff Harrington can be reached at (727) 893-8242 or harrington@sptimes.com.

>>FAST FACTS

What's the LIBOR?

One bellwether of the credit market crisis is the London Interbank Offered Rate, or LIBOR. It measures how much banks are charging one another to borrow. Many consumer lending rates, including about half of all adjustable-rate mortgages, are tied to the LIBOR. Tuesday the rate for overnight dollar loans hit a record 6.88 percent, before settling Wednesday to a still-high 3.79 percent. Also telling was Wednesday's record Libor-OIS spread, which measures the scarcity of cash.

Credit crunch has banks hunkering down, uneasy 10/01/08 [Last modified: Thursday, October 2, 2008 10:56am]

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