Insight: Business spending raises U.S. bank hopes

Fri Feb 24, 2012 11:15am EST
 
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By David Henry and Rick Rothacker

(Reuters) - Two-and-a-half years after the official end of the recession, businesses are starting to invest cash again, prompting bankers to hope they might start borrowing, too.

Consider Jim Burg. It has been a year since steelmakers started having trouble finding trucks to haul loads for the reviving auto industry. So Burg, whose company is based in Warren, Michigan, is finally about to borrow money from a bank to build his fleet of flatbed rigs to 85 from 70.

But Burg is taking the step carefully. He accumulated far more cash reserves than he has ever had in his previous 28 years in business. He also lined up bank credit lines in excess of what he needs to operate.

"We put in a very conservative business plan," said Burg. "Look what happened in the second quarter of last year when the tsunami hit Japan. That affected us directly."

Burg's story is a common one that bankers say gives them at least a little hope. They expect investments like those Burg is making will drive the economic recovery and bring additional borrowing and interest income -- even as they recognize that in this day and age, businesses are mostly averse to debt.

"Companies are going to continue to increase productivity and generate cash," which they can use to build inventory, said Laura Whitley, commercial banking head at Bank of America Corp. "I do not necessarily see them borrowing."

NO BORROWING SURGE

While banks large and small are certainly making more business loans, they say most of the money has been borrowed to replace worn-out equipment or to refinance existing debt. Businesses generally have not been borrowing to grow, making people like Burg a notable exception.   Continued...

 
A technician prepares a power converter at a plant of Swiss engineering group ABB in the town of Turgi west of Zurich June 9, 2010.     REUTERS/Arnd Wiegmann