December 15, 2014

The midterm elections are over and Congress will be firmly under Republican control next month, but what does that mean for the economy and the banking industry?

It’s well-known that many Nevadans and investors equate Republican political control with better business prosperity and a stronger stock market.

So to get some answers, the Las Vegas Business Press talked with Bruce Simon, chief investment officer with City National Bank, about the economy and politics.

“The expectation is that Republicans will try to reduce overall regulations,” said Simon. “How successful they’ll be remains to be seen.”

Simon expects the banking industry to seek some “changes to” some of the new regulations affecting the industry. But, he didn’t identify specific regulations he would like to see modified or overturned.

Simon said the bevy of new regulations has increased costs for City National, which has six branches in Nevada.

“We’ve had to hire new compliance people … and regulatory costs are higher,” Simon said. “We hope to get some relief, but it’s going to be tough.”

He said the banking industry is still dealing with very low interest rates that make margins on loans difficult. Simon said a growing economy, around 2.5 percent plus GDP, will lead to increased lending activity. This year, City National’s loan portfolio has grown 17 percent.

“Fed policy is going to dictate a lot of what happens over the next year,” he told the Las Vegas Business Press in an interview. “We think the average will be 1.35 percent on the Fed Funds Rate by the end of next year. The consensus is that rates need to start rising.”

Simon added that the Federal Reserve has been generating enough stimulus to encourage growth relative to the rest of the world. He pegged growth at 2.2 percent to 2.5 percent or a little better, with the number rising to over 3 percent next year.

“That pretty good growth,” said Simon. “We’ve had five years of pretty strong growth.”

Simon said energy prices is a “big tail wind” for the economy and the markets. He said if the price of gasoline stays where it is now for a year, that’s $1,200 of additional spending in consumers’ wallets, or a 2 percent or 3 percent increase in GDP next year.

“If it stays in the mid $60s range (for a barrel of oil) … it will have a significant boost for 2015.”

Taking a little broader look at the aftermath of all midterm elections since 1950, Simon said the stock markets, on average, move up 25 percent through June of the next year. The markets also react positively in the third year of the second presidential term, up 16 percent for a Republican administration and about 15 percent for a Democrat president.

Simon said City National Bank has kind of adopted a theme for the economy – “gaining altitude.”

“There are a wide range of opinions on the economy,” Simon said. “But our view is that the economy is still in weak enough shape that there will be no significant rise in interest rates.”

Simon cautioned that there are other issues that could affect the U.S. economy. He said growth in the Eurozone is barely zero, describing it as “a basket case.” He said the Japanese economy is still struggling and China’s impressive growth is slowing.

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Credit unions say yes to Apple Pay

And then there were two. The $6.3 billion America First Credit Union, with eleven branches in Southern Nevada, is now live on Apple Pay. The Riverdale, Utah-based company is the second credit union to begin offering the technology to their customers.

Navy Federal Credit Union, with two Southern Nevada branches and $62 billion in assets, went live last month.

“Apple Pay will bring a new level of efficiency for members, allowing them to pay with their mobile devices in a fast, easy and secure way,” said Rich Syme, executive vice president of American First Credit Union.

Syme added that “security and privacy is our upmost priority” when it comes to offering new technology and mobile advancements. Apple Pay is active with both its credit and debit cards, the credit union said.

Apple Pay allows users to make payments in stores with a single touch on their iPhone6 and iPhone6 Plus. When a user adds a credit or debit card, the actual card numbers are not stored on the device or Apple servers. Instead a device account number is assigned, encrypted and stored in the secure element on a device.

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Nevada bank employment

Federal Deposit Insurance Corp. statistics show a decline in employment at FDIC-insured smaller banks in Nevada, those with assets less than $100 million.

It is down by almost 40 positions over the past year, from a combined 186 in 2013 to 147 now. The decline is about the same from a two-year perspective. In 2012, the small banks statewide employed 182 people.

Within the context of the total number of FDIC-insured Nevada banks, the decline was modest. Third-quarter statistics show that the state’s 18 financial institutions had 3,121 full-time employees, down from 3,162 a year ago but still above the 3,074 in 2012.

FDIC statistics also found the number of banks reporting to the federal agency continued to decline, falling to 18 this year, from 20 last year and 24 in 2012.

The report didn’t disclose a reason for a drop in employment or number of financial institutions.

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