is the outlook for the economy. Did you know the ECRI states when growth is less than 2% for an extended period an economic set back is almost guaranteed. They have a darn good record in calling recessions. I know - you are thinking we just had a 2.5% increase, but the YOY increase is 1.8% and has been under 2% for a while. Of course there is usually a lag and the most likely time for the recession start is late 2011 or early 2012.
Another factor I was looking at is what sectors perform best in the late stages before the economy turns down. Care to guess? Healthcare. Care to guess what sector has out performed the past few months? You guessed healthcare didn't you. Good for you.
My point is - BBT can not be expected to perform well during a recession. Care to guess what sector out performs coming out of a recession? Did you guess financials? If you did you get a gold star. Point is - it may be some time before financials out perform (BBT for example).
So there you have it - the macro picture. Forget reserves, writeoffs, and all the minute details and look at the bigger picture.
The year over year increase in gdp is only 1.6%. However, if you exclude changes in inventory and government spending, the year over year increase is a healthy 3.5% which has been driven by a surge in capital expenditures (up 10%) and a nice increase in exports (up 6%). Personal consumption expenditures which make up about 70% of gdp is up 2.2% year over year and will probably continue to increase at a 2 to 3% annual pace until housing shows some signs of life. There has been a recent pickup in multifamily construction which will help out some in 2012. A very big positive factor regarding the consumer in my opinion is a sharp reduction in debt servicing. Currently, it is at the lowest level since the first quarter of 2000.
So I disagree with your assessment. It's a big mistake to look at gdp in total without analyzing the individual components. Imo, bbt will see ok loan growth going forward and will experience a huge reduction in credit costs as the runoff of bad real estate loans dries up. Kelly King recently said he thought the bank will earn 15% roe once credit costs normalize. I agree with his assessment and think it's likely at some point in 2012 that the quarterly dividend will double.
I suggest you listen to Clark Starnes presentation on 8/3/11. He said recently that credit costs will be down significantly in the 4th qtr. 2011. I hope that on Thursday he'll quantify this. Starnes heads up bbt's credit department.
How can they double the dividend when there is little net loan growth and they are just turning their cash over? If they have that much free cash now to double the dividend, can they then continue to grow it? And why should we care what Starnes says about credit costs? Their marginal cost of funding is zero right now (said King) and cannot get any better. Run off of bad loans they should not have made in 2006 is old news and the market has already priced that data point into the stock a long time ago.
The other side of the coin is zero interest (nearly so) is supressing spending by those most capable of spending - savers. If you have $100,000 in savings and it returns $1,000 in interest instead of a reasonable 5% then you lose a potential $4,000 in spending by those in the best position to spend.
The ECRI disagrees with you about the probable outcome of the economy and a potential of a recession in the near future. Let's see - do I listen to Norm or the ECRI which has a proven track record? Guess I would have to see Norm's track record over the past 20-30 years - for now I will go with the ECRI (I have seen their track record).