Miami bankers work to pull out of economic slide, plan ahead
The effects of Covid-19 have reached far and deep, spanning the globe and impacting individuals and businesses, governments and organizations of all types and sizes. But while the hurt is universal, albeit of varying severity, how successfully localities recover from what many are calling the greatest crisis of our lifetime will depend on a variety of factors.
Key to that recovery are the financial institutions upon which nearly everyone relies, and fortunately for those who call Miami-Dade home, there is no shortage of strong banks in the county.
How will Miami-Dade rebound in the coming months and years? What should residents and businesses here keep an eye on when gauging the county’s economic health? Which industries have had their trajectories permanently altered, and where will they go after the virus is in the rearview?
For perspective on those and other queries, Miami Today spoke with four local leaders in banking and finance: International Finance Bank President and CEO Jose Cueto, Sunstate Bank President and CEO Lloyd DeVaux, FirstBank Florida Executive Vice President and Regional Executive President Cali Garcia-Velez and First Horizon Bank Miami-Dade Market President Roberto Muñoz, who also serves as chairman of World Trade Center Miami.
Q: How is your bank looking ahead to pull out of the current economic slide?
Jose Cueto: International Finance Bank is focusing on who we are. The most difficult part of this pandemic event is that we don’t know how long it will last. We’re taking it one day at a time. There will be fallout in the mid- to long-term.
The recovery and shape of that recovery will be a big determinant in what type of damage we see. Certainly, “V” is the best scenario – a sharp down and aggressive rebound; “U” is more gradual with a longer bottom; and “L,” with an undetermined amount of time at the bottom and undetermined date of rebound, is the most damaging recovery.
Lloyd DeVaux: The first thing Sunstate Bank is doing is making sure our employees, who we’re keeping on staff, are safe. We don’t want to have a shortage of talent at the end of his. Secondly, we’re doing everything we can to help our customers so they’re as strong as they can be after this medical crisis, this pandemic.
We are continuing to watch everything we have to – our liquidity, making sure our deposits are there, continuing to help our customers with loan deferments and things like that. We remain very strong. We have strong capital, strong liquidity and remain a five-star Bower-rated bank. We’re staying prepared for the other side of this.
Cali Garcia-Velez: Thankfully, FirstBank Florida is in a very healthy financial condition. We have twice the amount of regularly required capital. Going into this crisis in such a strong financial position is very reassuring.
Because of that, and because we are a very profitable institution, our focus now is on supporting our customers. We are concerned for our small business customers and all our commercial customers with this economic slowdown, the impact on our consumer households and how that might impact their financial profile.
We launched a loss-mitigation program in early- to mid-March to give relief to customers that request assistance. We saw this coming and started offering our customers payment deferral assistance. We’ve been flooded with requests from our customers on residential mortgages and commercial customers to get payment deferrals.
It has been widely accepted, and our clients have been happy that FirstBank moved so swiftly. We aren’t questioning whether they have financial difficulty or not. We’re assuming they’re being honest.
We’ve also started aggressively working the SBA payment protection plan (PPP) program. We have worked nonstop, day and night for the last 10 days, including weekends, to ramp up. It was very difficult because SBA and the Treasury changed the terms of the program almost on a daily basis until April 7. We have over 100 customers already approved by the SBA, began to close on loans April 9.
We’ll work through the entire Easter weekend to process those loans. We know how critical it is that we get money into our small business customers’ hands as soon as possible.
Roberto Muñoz: First Horizon Bank continues to perform relatively well despite the economic environment we’re in. The bank has, over the many years, done a great job positioning its portfolios both through organic growth and acquisition. Today, our capital ratios are way above the minimum levels. Like most banks in the US, we have worked very hard over the last 10 years to increase our capital.
The federal government, through their regulators, has been vigilant in helping banks concentrate on the quality of their loan portfolios, with relatively good advance formulas on loans and mortgages. In general, America has the healthiest banking system in the world.
Our ability to weather the storm as a banking organization and as an industry is strong. However, the instant magnitude of the virus – we didn’t see it coming necessarily at all. It came upon us immediately. It’s a sudden switch from a normal operating environment to a crucial focus on government-related bailout plans that are working through the banks, from Treasury and the SBA, and it’s placed all our resources in this fight.
Q: How far ahead are you looking in terms of planning?
Mr. Cueto: From a planning perspective, we’re looking ahead a several different scenarios – 90, 180 and 365 days, in terms of what we’re analyzing. They’re very hypothetical at this moment, and we’ve modeled out different scenarios driven by how long this crisis could last. Then we back into what we feel the asset classes most affected by this will be.
Mr. DeVaux: At this point we haven’t changed our business plan. So much of how this is going to turn out will be determined by how long society is shut down. All businesses are being affected tremendously by this. The question will be, “How quickly will the economy recover?”
It’ll recover at some point, but are we going to be in a recession? It’s hard to plan for that. We have to make sure we have liquidity, capital and the talent on board to do what we need to and take care of customers. That way, we come out as strong as we can.
Mr. Garcia-Velez: We’re looking very far ahead. We kicked off a process [last week] to reforecast the financial budget for the bank for the remainder of the year. It is incredibly difficult during these times to figure out the duration of the crisis and the financial impact it will have on our customer base and the bank.
We’re making certain assumptions on when we think South Florida might open for business and how that will translate into whether it will be residential loan demands, commercial loan demands, and impact our deposit customer portfolio.
Mr. Muñoz: The idea now is to clear the current environment we’re in as far as the flood of applications coming into the bank, and the state is also receiving floods of unemployment applications to the point where their websites are going down constantly.
Banks are working with the Small Business Administration (SBA) with thousands of applications. We need to verify that they meet the criteria before we can submit the applications to the SBA to obtain an electronic transaction number that verifies that a person or company will get their funds in due course. This is all banks on deck.
After this, we need to see what the damage is to extent the economy and where specifically it occurred. We need to see what the damage is, the next level out, to industries where people gather, like tourism, transportation, air transport, restaurants and sports arenas.
Some industries – the grocery, pharmacy – are doing well. They have brisk sales. We have an overproduction of milk, so the dairy industry isn’t in good shape. This environment has allowed us to better understand as Americans our trade and logistics flow, particularly where our critical components are produced. Drugs are produced in China. Things historically produced in America aren’t anymore. I see a resurgence here. Manufacturing and other critical components will come home, requiring investment and opportunity for growth.
This will look like a typical recession after this blows over. We’re looking at 20 million-plus unemployed, but there’s much more than that in the short term. As things get back to normal and industries start opening, recovery will begin. The government has done a great job getting a very large stimulus package up and running. The Fed lowered interest rates very aggressively. More stimulus is on the way.
Q: What changes in the economy are coming?
Mr. Cueto: The higher unemployment number isn’t going to go away immediately. It’ll have an impact down the road. GDP will suffer as a byproduct of having an economy on pause for an extended period, and consumer spending will be negatively impacted as will any type of discretionary spending, in at least the short- to mid-term.
You’re seeing unprecedented measures taken by the US through the Treasury, Federal Reserve and SBA. There’s always a price to pay for a country in the long term when you put this much debt into an economy. The government right now is trying to keep businesses flowing, alive and surviving.
Everything is driven by how long this lasts and what the recovery looks like, and we don’t know. There are some positive takeaways from last week. You had a very strong market. Every major index outperformed, the highest gains since 1974. They all broke through what was considered to be resistance, and that’s a good measurement of where this economy is headed.
Mr. DeVaux: For the most part, interest rates will stay low. That’s a fact that’s happened. The interest rate environment through the Great Recession stayed low for 10 years. We had the strongest economy we’ve had for a long time going into this pandemic, and there’s a lot of pent-up demand. It’ll be a question of how much the economy jump starts after things open.
It won’t be like flipping a switch and everything going back to normal but a gradual opening of areas and functions with different rules. We’ll see a slower recovery that depends on depth.
Mr. Garcia-Velez: Unemployment will spike. Some small businesses will not survive. We believe it will have an adverse impact on loan delinquencies, whether consumer or commercial, and there might be an adverse impact on real estate valuations.
When you combine all of that, as a bank, we need to first and foremost be supportive of our customers and be prudent that as we continue to lend money – we have to lend money – to do so in a prudent and conservative fashion in light of the economic slowdown.
Mr. Muñoz: The silver lining in what has occurred is that working from home is no longer a difficult decision. Industries understand now that productivity from home is just as high as it is in the office. The financing for huge infrastructure projects – road expansions and other things people use to get to work and home – can be used for other areas of economic growth while more people are able to flex their schedule and work from home.
That was coming, but this has allowed that to leap forward. The advent of 5G, which hasn’t been implemented to a reasonable stage at this point, will allow further ability for people to interconnect efficiently and provide communication effectively to perform from distant locations. You could work from Iowa but perform in Miami. We can now look for talent anywhere. It increases our talent pool drastically.
Q: What will the impact be to financial institutions from the $2.2 trillion Washington bailout?
Mr. Cueto: Financial institutions aren’t necessarily a beneficiary of the bailout. Indirectly, it prevents assets from becoming nonperforming, as there’s oxygen being provided by the government to keep them afloat, and it will also help bank earnings and preserve capital at banks. Without this aid, it’s a significantly different picture.
The stimulus checks, SBA and Paycheck Protection Program bode well for banks, but we’ll still feel the pain. Not everyone is going to survive this, and some banks will be left holding assets that are a byproduct of Covid-19. But the money makes that much less impactful than it would’ve been without it.
Mr. DeVaux: The biggest crisis you could have, which we had in the financial crisis 10 to 12 years ago, was liquidity crunch. Liquidity is the death knell. When banks run out of money, that’s the end.
What they’ve done now is make sure there’s plenty of liquidity available. Take American Airlines or any other airline. If you lose one of these big businesses, thousands of people lose their jobs. This is trying to make sure the banks don’t run out of liquidity and that they have money out there for these big businesses to continue surviving, employing people.
The Paycheck Protection Program, for instance, is basically saying to businesses, “If you keep people working, we will keep you in business.” Unemployment is going to get worse if we can’t get back open and get these businesses working again.
We have two months, and for two months these businesses can pay their employees. But there needs to be more. We have to go for maybe another month or two.
Mr. Garcia-Velez: Unlike what happened in the Great Recession, banks aren’t getting direct bailouts thus far. Let’s hope that stays. Washington is pushing as much liquidity in the market as possible to lift businesses and retain employment.
Programs like the Payment Protection Program are critically important in trying to get money into the coffers of the small- and medium-size businesses so we don’t see the domino effect of business failing and people getting laid off. The approach the government is taking is the right way to do it. Small- to mid-size businesses are the economic engine of South Florida.
Mr. Muñoz: At the beginning, people will need that money to right-size their individual portfolios – pay the rent, buy food, rent-size their households, get them up and running. The money will be used by the SBA to get people back to work.
The money that’s being given isn’t typical for America. Stimulus programs are to get people to work. This one’s to keep people at home. Once we’re over that hump, they’ll go back to their workplace, and the stimulus will help there as well to shield the brunt of a catastrophic environment.
Q: What is your outlook for Miami-Dade moving forward?
Mr. Cueto: I’m guardedly optimistic. This isn’t New York. Hopefully we can steer clear of a more serious pandemic. Certainly, the numbers don’t indicate we’re headed in that direction at this point, but I’m not a doctor. I’m looking at a flattening curve in South Florida, and we’ve seen through other countries that social distancing has been an instrumental part of this recovery process.
But no one has a crystal ball. I don’t know how quickly we’ll go back to a normal working environment or what that process will look like. A lot is left to be determined. You don’t know if this thing will come back in the fall. I don’t even think our government has a clear position on how this will play out.
Mr. DeVaux: We’re a global city. When the downturn comes, we feel it more here, but we recover quicker. We’ll recover ahead of the rest of the country because we’re connected to the whole world. But there will be some stress for a while, depending on how this goes.
Mr. Garcia-Velez: It’s going to be slow to restart the economy. Once we get past the stay-at-home orders, it’s not going to be like flipping a switch and everything going back to normal. One of our main economic generators is Miami International Airport. It’s going to take time for people to feel comfortable getting on an airplane and resuming travel. That will be a big impact.
The second impact we’ll feel for some time is hotel occupancies, which are incredibly important for South Florida. Restaurants, dining and people going out will come back sooner, but it’ll take two to three months, post stay-at-home order, to get back to normal.
Mr. Muñoz: County and city mayors here have done a great job in curtailing people from being close to each other, on social distancing. Jackson Health System, Baptist and all the hospitals are working diligently to assist and obtain supplies. World Trade Center Miami is very involved in the logistics side to obtain needed equipment, using its global network of trade centers to search for masks and other equipment during this critical time.
The Beacon Council and Greater Miami Chamber of Commerce have worked tirelessly and coordinated effectively with webinars, seminars, information flow and general awareness to help individuals and businesses cope with information generated by the federal government and for businesses as it pertains to the spread of the virus and ways to control it.
Our hospitals so far are not overwhelmed. We still have beds available in the South Florida market, but we don’t know if the peak is near. It’s all hands on deck. Our first responders and people at Miami-Dade Public Schools, Miami Dade College and FIU are working to make sure virtual schools are up and running and children at all ages are being educated correctly.
America is at its best when we are faced with adversity. It takes a little time for us to gather our bearings and gain steam, but at the end, when the machine starts to roll, it’s a freight train. We will get out of this. This will be a great success story for Miami-Dade and the United States.