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Over the Hump? Financial Exposure Still Uncertain

Over the Hump? Financial Exposure Still Uncertain

source for article: Fairfield County Business Journal, September 16, 2008,


Despite the federal bailout of two massive mortgage companies, a Citizens Bank economist predicted that Fairfield County’s financial sector is only “halfway through this mess” as banks continue to write off underperforming loans.

Kent Gladding’s comments, delivered at a Connecticut Business and Industry Association (CBIA) symposium in Stamford last week, came on the heels of the U.S. Treasury’s takeover of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., dubbed Fannie Mae and Freddie Mac respectively.

“It is too bad for the taxpayer, but there’s no way around it,” said Gladding, who is senior vice president and chief investment officer at Providence, R.I.-based Citizens Bank, a subsidiary of Royal Bank of Scotland which is building a headquarters in Stamford for its RBS Americas division. “Banks are in the business these days of repairing balance sheets, and not expanding access to credit.”

Andres Carbacho-Burgos, an economist with the subsidiary of Moody’s, predicts a “growth recession” for Connecticut, with perhaps a single quarter of declining gross domestic product (it takes two to qualify as a recession) coupled with malaise in job growth. Speaking at a companion CBIA conference in Rocky Hill, Carbacho-Burgos agreed with Gladding’s opinion that Fairfield County’s exposure to the financial sector places it at relatively higher risk than some other parts of the area.

“Connecticut is more dependent on the financial sector and financial-sector jobs, so Connecticut has taken more of its share of the fallout from the U.S. housing crisis,” Carbacho-Burgos said. “Most of the losses are concentrated in what is called the shadow-banking system … which drank the Kool-Aid significantly.”

Still, in the six weeks leading up to the Fannie Mae and Freddie Mac moves, the tri-state economy had stabilized, according to an update issued in early September by the Federal Reserve Bank of New York following a survey of businesses.

“Credit conditions in Connecticut are holding up better than what we are seeing (elsewhere),” agreed Donald Klepper-Smith, an economist who is chairman of the governor’s council of economic advisors. “We don’t have the subprime issues here that are going on, and I think business conditions are a little better.”

While the businesses reported modest job cuts, the commercial office market in Fairfield County and Westchester County, N.Y., appears to be in better shape than on Long Island and New Jersey.

Commercial mortgage and leasing activity has slackened this summer, however, which the Fed interprets as a possible sign that businesses may be holding off inking contracts on the expectations landlords will cut asking rents.

Perhaps incredibly, the region’s aggregate retail sales appear to be slightly above last year’s levels, despite a recent survey by Siena College that shows New York consumer confidence at a decade low.

Todd Martin, who has consulted to Bridgeport-based People’s United Financial Inc., noted that Connecticut will likely clear the current downturn with far fewer work-force cuts than in previous recessions.

“I think most companies are running so lean and mean … that they really can’t lay off more people,” Martin said.