Wilmers on Wall Street: ‘It’s very serious’
M&T chairman says system broken
As Western New Yorkers watch the nation’s financial crisis nervously — and largely from the sidelines — few people have the industry knowledge and depth of Robert G. Wilmers.
A native of New York City, Wilmers has been chief executive of M&T Bank Corp. since 1983. During that time, he has transformed a sleepy local bank into one of the nation’s 20 largest bank holding companies, while leading a bank management team that is among the most respected on Wall Street.
The Buffalo News talked with Wilmers last week to learn his views on the crisis.
Q: How dire is the situation that we’re in today nationally?
A: It’s very serious. It’s certainly the worst thing since I’ve been around.
Q: How did we get here? What do you see as the basic reason for the current credit crisis?
A: I think the system’s broke. Thirty years ago, over 75 percent of the lending was done by the banking system. Today, it’s under 25 percent.
As a result, the Fed (Federal Reserve) doesn’t have the same control that they used to have. At the same time, interest rates were held very low for a long period of time.
People looked for alternative yields which were more appealing than they could get from money-market funds or their deposits in the
banks. And on the other hand, the low rates were found to be a very cheap source of financing for the real estate industry.
As a result, real estate prices skyrocketed on the one hand, and on the other hand, people invested in alternate paper, and real estate prices went up 25 or 35 percent. Now they’re coming down.
At the same time, the financial system isn’t regulated the way it should be. So the markets have stopped functioning. Financial institutions are . . . scared of doing too much business with any institution because they don’t know what’s in the other guy’s balance sheet. The markets have totally seized up. That’s very very dangerous.
Q: Is it a confidence issue or a fundamentals issue?
A: Both. The problem in confidence is institutions and people big and small are very concerned about what’ll happen to their money. It’s to the point where [a] number of people have asked me in recent days if my money is safe in the bank. I know that people’s money is safe in M&T. I suspect that 90-odd percent of the money is safe in other banks, particularly since it’s guaranteed 100 percent by the FDIC. But people are scared.
On the fundamentals, you’ve read about some $500 billion that’s been written off. People don’t know how much more there is to go. People don’t know when the economy will be operating the same way it was three, four, five years ago.
Q: Are you scared yourself?
A: I’m not scared. I am concerned.
Q: Could anyone see it coming?
A: I don’t know. That’s above my paygrade.
Q: Are you surprised by the scope of it?
A: Yes. I knew something was going to go wrong. But of this dimension? I don’t think so.
Q: What role do you think huge bonus checks and commissions all along the credit production line — from mortgage brokers to investment banking executives — played in this? Were people greedy?
A: It certainly played a role. Yes.
Q: Should that commission/ bonus structure change?
A: There’s something inherently wrong with it, yes.
Q: What would you recommend?
A: I don’t know. I’m not a compensation expert.
Q: How long will the hangover from this crisis last?
A: A few years. That’s beyond my paygrade.
Q: Is a $700 billion government bailout necessary? Do you agree that without a government bailout the U. S. and possibly the world could see a recession or depression?
A: I don’t know how they got the number $700 billion, but something dramatic had to be done. And since they put $700 billion on the table, you’ve got to work with that kind of number, because if you don’t, the psychology of them being unsuccessful at this point would be detrimental.
Q: Among the proposed additions to the bailout bill, would you support limits on executive compensation?
A: Yes, that’s reasonable. Somebody that doesn’t work as hard as you gets paid $35 million bucks a year?
Q: How about rewriting mortgages in Bankruptcy Court?
A: I’d have to know a lot more about that. I’m not sure. That’s a complicated one, and I’m not sure I’d want to give every judge in the United States that leeway. People would move to certain areas of the country in order to get a good judge. It wouldn’t be black and white. It’s too complicated.
Q: How about other mortgage help for borrowers?
A: There was a thing in the ’30s called the Home Owners Loan Corp. What happened there is you have a mortgage, and you stop paying it, and then your bank sells your mortgage to the Home Owners Loan Corp. and takes a $50,000 hit. And then you negotiate your new deal with the Home Owners Loan Corp. I think that worked reasonably well.
Q: Is it fair for the government to ask people here to bail out people elsewhere who gambled and lost?
A: Life’s not fair, but I don’t know what you do about that.
Q: For those who are in mortgage trouble, many say banks are very reluctant to adjust terms even if it means foreclosure. Why are banks so reluctant to adjust mortgages?
A: [When] the average bank gives someone a mortgage, the terms and conditions are clear on each side. Why should a bank all of a sudden say we’ll write off 25 percent of each mortgage? The whole banking system would go bust.
Remember, banks are lending other people’s money, and banks make sometimes less than a margin of 1 percent on the difference. You’re talking about banks taking a haircut of 5, 10, 25, 50 percent. No bank can afford that. You take a 5 percent discount on your mortgage, and that could break banks. It’s not the bank’s fault that people borrowed money they can’t pay back.
Q: Isn’t it better to make a little less on the loan and not go through a foreclosure?
A: We do not make a lot of money on the loans. We make money on the spread. Banks do not make a lot of money lending other people’s money.
Q: The crisis has already transformed the banking landscape. What are the pros and cons of linking investment and commercial banks?
A: The cultures are so different. We try to work with our customers from day to day, and day-in, day-out learn their frustrations and their problems. Investment banks are really just interested in deals. I’ve never been interested in M&T going into investment banking in any big way except to service our customers. How that’ll all work out, I don’t know. Investment banks were very overleveraged, and how they’re going to get underleveraged and still be regulated, I don’t know.
Q: How has investment banking changed? What do you think it will become? Is the independent investment banking model dead?
A: There are all these boutiques that are very successful. I don’t know if they’re leveraged or not. There will always be a role for some kind of investment banking or merchant banking. I just think it’s gotten out of hand.
Q: What do you see in the future for commercial banks, with the emergence of new giants like Bank of America and JP Morgan Chase?
A: As long as there’s a level playing field, there’s room for everybody. And I put great accent on level playing field.
Q: How strong is the local banking industry?
A: In Western New York, I think it’s in good shape. I haven’t heard any rumors.
Q: Does the crisis open any opportunities for the Western New York region?
A: Hopefully.
Q: How can the region capitalize on that?
A: By working together and not having negative dialogue in the media all the time.
Q: Should local savers and investors be worried?
A: I think they should be prudent, and not do anything stupid. Don’t get involved in speculative investments that you don’t know what you’re talking about. Over time, the stock market’s always been a good investment. Whether this is a time to buy or sell is not for me to judge. This is a time to be careful, that’s all.
If they’ve got $100,000 in any one bank, there’s no reason to be concerned, because that’s guaranteed by the U. S. government. Beyond that, I haven’t seen the balance sheets of the other banks in Western New York, but I’ve never heard of any of them being reckless.
