Banking on Caution 2002 promises to be a mixed bag.

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December 01, 2001

Miami Business

By Jeff Ostrowski

Banking on Caution 2002 promises to be a mixed bag for banks and other sellers of financial services. Profit margins may contract and lending standards may tighten up as mortgage lending remains active and depositors stay put.

INTERNATIONAL BANK of Miami is one of many financial institutions in Miami-Dade County that will scrutinize loan applicants more closely in 2002. "Our openness to lend is going to be curtailed," says Carlos Mier, the bank's vice president of commercial lending. "It will be harder o be profitable next year, but I believe we will be."

Handling money remains a key industry in the deposit-rich Miami area. Banking and other financial services support 7,579 businesses with 52, 480 local employees and 10.5 billion of annual revenue in the county, according to the Beacon Council, Miami-Dade's economic development agency.

Boosting bank revenue and employment in 2002 will be a tough task, though, especially if overall economic weakness leads to a surge in loan defaults.

Meanwhile, declining interest rates this year have supported an abundance of mortgage lending activity, especially in refinancing. Still, many local banks have been earning as the Federal Reserve had reduced interest rates, narrowing the difference between the interest banks pay for deposits and what they collect on loans. "Margins are being squeezed," says Terry curry, senior vice president and chief credit officer of Miami-based Ocean Bank.

Bankers also must do battle with mutual funds and securities brokers for customers funds, armed only with certificates of deposit paying rates at historic lows. "We'll have to continue to fight for the deposit dollar," says Bert Lopez, chief financial officer at coral Gables-based BankUnited. But with the US stock market in the basement this year, deposits are hardly vanishing from banks. Miami-Dade County's 525 bank and thrift branches held deposits totaling $43 billion as of June 30, according to the Florida Bankers Association. That's up from $41 billion in mid-2000. And it's well above the $34 billion in 1997, before the technology-driven bull market in stocks gave brokers an edge on bankers in the late 1990s. Now, the volatile stock market helps banks keep deposits. Says Curry of Ocean Bank: "To run off, deposits have to have a place to go, and there's not a lot of alternatives out there."

For Miami's securities industry, the volatile stock market means a continued shakeout, says Alan Bernstein, president of Stratigraphic Asset Management of Coral Gables. "The industry is mature, and there's probably too much capacity," he says.

Big brokers such as Merrill Lynch are terminating thousands of employees across the nation. But Philip Caso, a Merrill Lynch vice president in Miami Beach, expects fewer layoffs in Miami-Dade than in New York and other US cities, largely because Merrill's Miami-are operations have had a lower concentration of investment bankers.

Economic uncertainty may encourage individual investors to seek the help of financial advisers, rather than taking a do-it-yourself approach. The volatile stock market has been a bon for professional advisers, says Richard Newman, president of Newman & Cohen, a financial planning firm with offices in Miami and Boca Raton.

"So many people thought, 'What do I need a financial adviser for?'" Newman says. "Those people now are coming to the conclusion that they need advisers. Part of our job is to help clients get through their fear and hold their hands." And part of that comes down to life insurance and disability coverage, which became easier sells after Sept. 11. People are dealing much more with their own mortality," Newman says.

So are the regulatory burdens of the financial services sector. Banks in 2002 will face added scrutiny form regulators trying to block the flow of cash to terrorists. The Patriot Act is a new federal law that required banks to report suspicions deposits more aggressively and allows the CIA and FBI broader access to bank records.

Still, Miami banking consultant Ken Thomas says the added scrutiny should be no big deal for an industry accustomed to close regulation. "It's going to require additional work, there's no doubt," Thomas says. "But banks are used to it."

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