It's a strange time for mid-sized banks in the US. The collapse of three regional banks earlier this year followed by the emergency merger of PacWest and Banc of California last week has created a shakeup in the industry that's been exacerbated by the Federal Reserve's continued efforts to raise interest rates.
Another small bank failed Friday. Heartland Tri-State Bank of Elkhart, Kansas, was wound up by the Federal Deposit Insurance Corporation. Its four branches will reopen Monday as part of Dream First Bank under a deal that will see it buy most of its failed rivals assets.
But executives at the US arm of Spain's Santander, the 30th largest bank in America according to the Fed, with more than $105 billion in consolidated assets, don't appear to be worried. Santander US CEO Tim Wennes told Before the Bell that confidence among customers remains high.
Santander recently released a quarterly survey of about 2,250 middle-income bank and financial services customers (defined as having household incomes between $47,000 and $142,000.)
"We started this survey because there were a lot of mixed economic signals out there," said Wennes.
"The majority of our clients here in the United States are middle-income households, and we want to understand how inflation is impacting them, how higher auto prices are impacting them, how they're thinking about their behaviors and payments," he said.
The survey found that nearly 80% of households said they weren't impacted by the recent banking crisis and had not changed their financial behaviors because of the recent failures. Only 5% of those surveyed said they changed banking providers because of the turmoil.
Santander also found that 68% of responders said they were on track to achieve financial prosperity and that 79% thought it would happen in the next 10 years. The bank defined prosperity as "thriving financially, being able to cover living expenses, handle emergencies, and pursue life goals without significant tradeoffs."
Before the Bell spoke to Wennes about these results, the resiliency of the US consumer and the future for regional banks.
Before the Bell: Is there a difference between consumer confidence and people thinking they're on the path to financial prosperity? Is this a difference between having savings versus spending money?
Tim Wennes: What we see in the survey is that inflation is taking a bite out of consumers' wallets, and the majority of consumers are adjusting how they're spending money because inflation is their number one worry. At the same time, consumers are resilient and hopeful. So when we ask them these questions about prosperity, whether they're on the right track, the answers are overwhelmingly yes.
A lot of people surveyed think they'll become financially prosperous within the next 10 years. But when we look at the short term, that number decreases a bit. Is there a mental disconnect there?
People believe they're making the right choices. Some of them are insecure, clearly. But consumers are still confident in their bank and in the banking industry but also taking advantage of this current interest rate scenario. So the upside of what's happened with interest rates is for those that have deposits, some savings and investments can now be earning a much higher risk-free return on that. Higher than they've seen in the last 15 years.
Why aren't more people moving into high-yield accounts?
I think it's inertia. People are comfortable with what they've got and so they don't take action. But as time passes there comes more awareness, and we'll see more customers move to take advantage of that. I think that the barriers to changing accounts are also going down. That makes it easier for customers to either open new accounts or to make changes to the type of account that they have.
Were you surprised that confidence in banking remains high after the recent regional banking crisis?
I was not surprised, it mirrors what we've seen with our customers. The foundation of banking is built on trust and confidence, and that's driven by relationships and communication. Customers have been stable and we've been communicating very frequently to make sure that they've got the latest information.
In your survey, 73% of those concerned about inflation say that they haven't been able to save as much, which is up from the previous quarter, and 68% say that they've made significant cuts to adjust for inflation. That's also up over last quarter. Is inflation also cutting into savings?
I think people are thinking about their immediate situation versus their outlook for the future. It gets back to resiliency for consumers. They have the view that they can make the adjustments they need to make in order to be prosperous in the future. We're also seeing reasonable wage growth, and we've got very strong employment levels. There is reason for people to be confident. People are also seeing inflation come down and they're optimistic about that.
Two thirds of the economy is driven by the consumer. And what we've seen here over the past two years is that the consumer remains remarkably resilient and remarkably confident.
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