MINNEAPOLIS -- Ashes on Wall Street could make fertile soil for the likes of U.S. Bancorp, Wells Fargo and other traditional banks with a big presence in Minnesota.
Investors -- and the analysts who offer them advice -- have sent up the shares of many banks far from the scorched earth of lower Manhattan.
The stock market is betting that one bank's loss can be another's gain, with customers and employees of troubled banks up for grabs. Banks able to snare customer deposits at a low cost also may see their profit margins fatten as the spread widens between the cost of acquiring money and lending money.
To be sure, borrowers will find credit more costly and harder to come by in the months ahead, slowing economic growth and raising barriers to creating or expanding businesses. Few experts foresee improvement in the job market until next year.
"U.S. Bancorp and Wells are well positioned to not only weather the storm but come out of the cycle better off," said David George, an analyst at the New York City office of brokerage firm Robert W. Baird.
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U.S. Bancorp and Wells Fargo, the two biggest players in Minnesota banking, each have return on assets, net interest margins and return on equity that shine compared with peer banks.
"As clients cast about for new lenders and thousands of unemployed bankers look for new jobs, Minnesota banks may end up acquiring many of both," said Terry McEvoy at Oppenheimer & Co. in New York.
In a speech last week, Wells Fargo Chairman Richard Kovacevich confirmed interest in exploiting acquisition opportunities amid the cascading wreckage in the banking and insurance business.
"Wells Fargo often buys fixer-uppers," Kovacevich said Wednesday in a speech at the Association of Corporate Growth 2008 conference in Beverly Hills, Calif. "Given the financial conditions today I feel like a kid in a candy store.
"There is a lot out there today," he said.
That was no surprise to analysts such as George.
"U.S. Bancorp and Wells will come out of this with an upgraded customer base and employee base," he said. "People like to deal with winners."
The balance sheets of U.S. corporations as a whole, including many with headquarters in the Twin Cities area, are healthier than they've been in years. Corporate America was sitting on $14 trillion in cash in the second quarter, according to Federal Reserve flow of funds statistics. That's an18 percent gain since 2002, after adjusting for inflation. Meanwhile, corporate debt over the same period rose only 8 percent.
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That means many companies will be able take advantage of strategic opportunities.
"Clearly, the need to borrow is not that high," said Nariman Behravesh, chief economist at Global Insight, a leading economic forecasting firm based near Boston. "As a result, the corporate sector is somewhat insulated from this financial crunch that seems to be going on."
While regional banks have not been immune from a banking crisis that has the central bank and the U.S. Treasury pumping tens of billions of dollars into the financial system, their exposure to bad credit has been modest compared with money-center banks.
"We're at the height of the crisis now and I expect things to dissipate," said Mickey Levy, chief economist at Bank of America. "I don't think the contagion will spread to a wide array of other banks."
