Industry News

Banking, not what it used to be

Gary M. Greene

Wall Street is riding higher this week on the hope that some stability is returning to the banking sector and that the lending logjam is beginning to break up. If so, it will be welcome news to a media industry that has been sidelined for many months by lenders who haven’t been lending. It has been frustrating for those companies with strong balance sheets who have wanted to borrow money for acquisitions or refinance their credit facilities to help them get through the current economic downturn.

Early last year banks were still seeking customers and touting the relationship component of their business structures. “We value our customers; we stand with them through thick and thin; and we give them great service,” was the motto that almost every lender spouted. It is interesting to see how that has played out during these turbulent days of the economy. Relationships melted into transactions and many large banks slammed the door on the fingers of long time customers. As the economy has become more difficult, the banks have parked the relationship at the dock and off-loaded the customers. It is a lesson that every generation learns about economics and finance. Easy credit is never easy when it has to be paid back.

Banks have traditionally wanted to be players in the media world. They have encouraged their media customers to borrow, to use their revolvers, to pay interest only and principal later. Money, terms, and credit lines were liberal because the banks saw the media industry as a sector that they liked and wanted to lend into. But that has changed and likely will not return anytime soon.

But, at the same time, banks were not practicing the business discipline that they expected from their own customers. Assessing the credit risk of credit in all forms was thrown aside. The housing/sub prime bubble is simply an example of the problem, but in and of itself, not the real problem facing the banks. Credit has been too easy for many years. If you had a pulse, you had credit and the government went along and grew the money supply. So excess credit is the culprit and sub prime lending, credit cards, and home equity lines were simply channels to distribute it.

Each generation must learn some difficult lessons. Our parents certainly learned valuable lessons from the depression and never fully trusted banks or Wall Street from that period forward. Hopefully this latest self-induced economic fiasco brought on by the “Me Generation” will bring the same benefit to our children. All is not lost during difficult times. Quite often deep character and values are formed that can work their way up to help shape policy and even politics. Let’s hope that proves the case.

But are banks really lending now? The media companies don’t hear the phones ringing yet. But when they do, they will take the call with a new appreciation for how fragile economics can become when it is every man for himself.

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The Banker’s Viewpoint

Last week’s column on the current banking environment generated some interesting comments from our friends in the banking community and we think it’s only fair to pass along some of those to you.

Here is what several bankers had to say:

• “Good credits can still borrow, but the pricing is different. There is more risk in the media sector because of the general downturn in advertising, and that is factored in today’s pricing.”
• “The media sector, especially print, is out of favor. You need a good story for a loan officer to take to the credit committee. If an owner is breaking even or losing money, why would you want to loan them more in this environment? You would only do it if there was hard security to back up the loan.”
• “Everyone has bashed the banks for making bad loans. What makes many media companies’ good credit risks right now?”
• “Cash flows have declined. Values have declined. Where’s the bottom?”

We also heard from some publishing companies who have good credit relationships with their banks. “It’s the old story of being able to get money when you don’t need it, and that’s true now. If you are performing well relative to this market and if you have a solid balance sheet, local banks are willing to talk. But if you desperately need money, there aren’t many who will listen.”

I believe that everyone, whether in lending or media, would like to see things return to a more normal environment. The new normal will be far different from the easy credit days of the past, however, and many media companies, large and small, are frantically trying to survive to fight another day. It is only a matter of time until the economy improves. Hopefully media companies and banking will emerge stronger and wiser than they both were during the giddy, free flowing credit days of the past.


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