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Charting the course

NJBIZ talked with banking industry leaders about how and when the state’s economy might reopen

With statistical trends marking the COVID-19 outbreak beginning to move in positive directions, policymakers are starting to shift their focus to when and how the state’s economy should be reopened. Which businesses can be opened first? What should the criteria be?

In a conference call with local journalists on April 30, University of Washington professor and infectious disease expert Dr. Vin Gupta suggested that rather than thinking in terms of essential versus non-essential businesses, the analysis should examine which businesses are safe and which are unsafe. Is that shift warranted?

And what will come after the word comes down to reopen? Are business owners and corporate executives prepared to meet the challenges that will come with changed consumer attitudes?

Banks have played a crucial role in keeping New Jersey businesses afloat, serving as a pipeline for billions of dollars in aid from the federal government. Financial institutions will also necessarily occupy an important place as the economy reopens – providing capital and counsel to shell-shocked proprietors. Bankers have their ears to the ground, hearing firsthand from clients and customers exactly how the pandemic affects sales, profits and operations.

So NJBIZ talked separately to several banking industry leaders from around the state about the prospects for reopening, what that process might look like and what banks are doing to prepare for the restart. Below are some of their views and observations. The questions and answers below have been edited for length and clarity.

NJBIZ: The governor has made clear that his primary issue is going to be public health. Unless they see certain metrics in public health, the number of cases, they’re not going to try to reopen. There’s another school of thought that says that the greater risk is crippling the economy if more and more businesses are not allowed to open more quickly. Where do you fall on that spectrum?

Gov. Phil Murphy holds his daily COVID-19 press briefing in Trenton on May 4, 2020. KEVIN SANDERS, NEW JERSEY GLOBE

Gov. Phil Murphy holds his daily COVID-19 press briefing in Trenton on May 4, 2020. – KEVIN SANDERS, NEW JERSEY GLOBE

Kevin Cummings, chairman and chief executive officer, Investors Bank: Well, I’ll tell you, I listen to Gov. Cuomo, I listen to Gov. Murphy, and we’re at the epicenter of this problem. So, for people on the sidelines who are second guessing the leadership, these guys are responsible. So, I respect their position and I support their position, but I just hope there’s an economy to come back to if they delay too long. It’s a cost-benefit, risk management point of view. And I think with this blanket shutdown, I think a more targeted approach, identifying the at-risk people, like the elderly, the people with pre-existing conditions, like diabetes … I think it should be a more targeted shutdown, and hopefully that will accelerate the things to get us back to normal. I think that Gov. Murphy, with his six-point program, where he’s focused on let’s flatten the curve, 14 days of positive results in the statistics, I think that that’s certainly a starting point.

I don’t think we should start until people are comfortable with that 14 days. I agree with him on that. But then, once we get going, where is the expanded testing going to come from? Is it just talk? Is there going to be an argument between the state and the federal government over who’s going to be responsible for that? We’ve got to take responsibility for that.

We’re looking at things, as we bring our people back to work—temperature taking and things like that, maybe social distancing, maybe having people come in every other day. We’re looking at a whole scan of things to get things back to a sense of normalcy.

John McWeeney, president and CEO, NJ Bankers Association: I think I fall on the spectrum of somewhere in the middle. I think you have to establish a certain amount of confidence among the public that it’s safe to go out. So, we need to continue to show progress toward the flattening of the curve. The statistics about new cases and fatalities, and hospitalizations—I think you have to continue to drive that downward.

We need to lay out a clear vision of how we’re going to reopen, so people are going to feel confident. Even if we just flipped the switch today and said we’re going to open tomorrow, you know that most people are not going to run back to a restaurant or to a retail store unless they feel comfortable being out and about, that we’ve made progress toward those health standards and that companies we’re going to do business with have put into place safeguards to protect them.

One of the things banks are wrestling with: We really haven’t closed; we’ve remained open during the pandemic. The lobbies for the most part have closed. I believe you can still make appointments to do certain things in the lobbies, but for the most part the lobbies aren’t opened. So reopening for the banks would be, OK, so we reopen the lobbies and the banks–we’re starting to lay out a matrix for doing that, and there are so many considerations, from the way the facility is laid out, to what type of protective gear the employees and the customers have to have on, the social distancing, the cleaning of the facilities, how will employees feel about coming back to work in a common work area.

It’s a pretty complex issue, but I think when you get to the root of it, it’s what level of confidence will people have going out and about and doing business. I think different people may have different levels of comfort and confidence. Some people may be more inclined to go out to a restaurant if they see that all the safeguards have been put into place, and others may not want to go to a restaurant for quite some time.

I do see obviously the need for the health part of it, but there’s a tremendous concern about what it’s doing to the economy—people’s ability, if they lose their jobs, to pay their mortgage, credit cards, put food on the table. Small businesses to try to stay open or reopen when the time comes. So, it’s a very delicate balance.

Magyar Bank President and CEO John Fitzgerald

Magyar Bank President and CEO John Fitzgerald – MAGYAR BANK

John Fitzgerald, CEO, Magyar Bank: I am OK with what [the governor is] doing. We need to get this economy going quickly, though, rather than—hopefully, this committee, sometimes working in a committee setting could slow things down–we need them to work quickly, because we really need to get people back to work. It’s going to be the key to our economic recovery. This downturn in the economy was all driven by the pandemic. We had a very solid economy going into this, so, I think we can rebound first slowly, but I think we can pick up speed on that recovery if we are opening businesses in a smart way and both the governor and his taskforce help us to do that. I really think there’s some positive signs that things can rebound fairly quickly once we get back to work.

NJBIZ: Where do you think Gov. Murphy could move faster? Are there certain businesses that might be able to open sooner?

JF: I think construction is an obvious one. He pared back, there are certain construction sites that are allowed to work, others not. I think construction, especially when you’re in an outside environment, at all costs should continue, because that’s going to drive not only the construction industry, but the supply firms that supply the construction companies, the various vendors, or subcontractors that are involved with those projects. So, construction is definitely one.

I like what he’s saying about reopening golf courses and state parks. While it’s not an economic engine, it just gives people a little hope that things are turning around and we’re able to get outside and enjoy hopefully the spring weather.

As far as businesses go, I think there’s a lot of office businesses that people could come to. People are afraid to go, where people are supposed to be self-isolating. And you read in the paper where people are given fines when they are outside because of the governor’s orders.

I think there’s a lot of office type businesses: lawyers, doctors who provide surgeries. There’s a lot of people—I have a couple of people with bad knees, bad hips that are just suffering now. There’s got to be ways that we can get those people back to work with elective surgeries and things like that.

KC: The first one, right on the top of the list, is the health care system. Dentists, doctors, let’s get back to some normalcy there. The doctors are smart enough to wear the appropriate PPE. The gas stations are open, why can’t we go to a car dealer?

I’m really concerned about the small businesses and the restaurants. The seasonal businesses down at the Jersey Shore. Some of these businesses may not even open because they might have to have 30 percent occupancy—it’s just not feasible.

So that’s the major challenge. We’re making these decisions—sometimes the government is making too many of the decisions. We should allow individuals, whether the restaurateurs or the individuals who go to those restaurants, they should be making the decisions about what to do sometimes.

NJBIZ: Can you imagine an economic imperative that would say, OK, this kind of business faces an existential threat and we need to get it open now even if the public health concerns, those criteria, haven’t been met?

John McWeeney, NJBankers president and CEO.

John McWeeney, NJBankers president and CEO. – NJBANKERS

JM: I think we’ll have the opportunity that certain sectors of the economy, certain industries, can open sooner than others. Hopefully, in certain manufacturing environments they can institute the proper social distancing and PPE guidelines, etc., and they can start to open up. But I think at the end of the day the health of our society trumps everything else. I don’t think you just reopen restaurants because we’re worried about restaurants going out of business. Everybody’s got that concern. I think we should do everything we can to try to support them, but it’s got to be done carefully and thoughtfully.

Again, I go back to basics. No matter what the government does, if people don’t feel comfortable and confident, they’re not going to go.

JF: I think you have to weigh those two variables. You cannot just say the health of the populace, we need to have—and I think [the governor] misspoke, but I think he said … “We need people cured, we can’t have more cases.”

What we need to do is to manage the outbreak, but we also need to get people back to work. There’s a lot of people that were ill, there are a lot of people that are fairly healthy that could work in a socially distanced way. The only way to get the economy back is to get people back to work. Because sitting at home and working is just not working for a lot of businesses that deal with people directly.
The speed of what he’s doing—I think we could pick up the speed. But I understand his concerns as far as—we’re dealing with people’s lives here. So, it’s a difficult decision.

NJBIZ: Talking about banks in particular, what are they doing now to prepare? What sort of planning do you sense is going on, and what should they be doing?

JF: What we are doing is, we’re not as focused on earnings. What we want to do is shore up our allowance for loan loss. Our allowance for loan loss is our cushion. When loans go bad and we need to write loans down because the allowance for loan loss is where we get those funds. So instead of worrying about earnings, and the investor community, we are more worried about shoring up our allowance for loan losses through the money that we do earn. But instead of realizing it as earnings, putting it against potential bad loans three, six, nine months, 12 months down the road. It’s a problem that we’re solving by shoring up our allowance for loan loss.

KC: I think it’s all about community banking and relationship banking. We have a program in place where we’re reaching out to our customers, seeing what they need. Early on in this process, in mid-March, we allocated $1,000 per branch, $150,000, for our retail teams, our branch managers, to reach out to not-for-profits in the workplace. … I told them to go to the store, go to the grocery store, make sure they have food. Let’s be that good community partner in the workspace.

Our foundation allocated close to $800,000 to foodbanks, social services, and things in that area. We made a donation out on Long Island of $100,000 to the Stony Brook University Hospital as they were putting up a [temporary] hospital on the football field. So, we’ve been very active in reaching out in the community, reaching out with our customers, and making sure about not only their financial wellbeing but their social and physical wellbeing also.

That’s going to continue through this process, because, in addition, we have the PPP program, where we put out a tremendous effort working in that program to make sure that all of our customers got satisfied. I’m happy to say that, by tomorrow, all of our customers will be satisfied with approximately $350 million in loans.

JM: [T]o me, the primary role that our banks play is to provide capital, both to consumers and to businesses, to run their lives, and to run their businesses. Throughout this process, the banks have done a number of things to try and perform that role.

First of all, they reached out early on to a lot of their business borrowers proactively to see if they had been impacted by the COVID-19 virus, what’s it going to do to your business, how can we help. Early on, before the government even came out with any big programs, all the things they are doing, there were a lot of loans that were being restructured between banks and commercial borrowers, just because the reality of it was that it had to be done. And those borrowers needed to be supported.

PPP Paycheck Protection Program concept. Inscription on Keyboard Key

DEPOSIT PHOTOS

Shortly after that, the banks morphed into the phase of what can we do to help residential borrowers. Working with the departments of banking and insurance and the governor’s office, this mortgage relief program was put in place. We had close to 70 banks participating that basically offered rainy-day mortgage forbearance for principal and interest payments. Those marked a big comfort level for somebody who may have just lost their job or had their pay reduced to have three months to make their payments.

PPP1 came out a couple of weeks ago, a herculean task, $349 billion coming out from the SBA. It was all done through banks. The SBA does $25 billion to $30 billion in loans. We did $349 billion in less than two weeks. And now … it’s PPP2, and there’s another $350 billion, I believe it is, that’s been made available. It’s an incredible undertaking, and the banks were just overwhelmed working seven days a week on that.

Now there’s this next phase of PPP. … The system is just overwhelmed by the volume of loans being put in. We surveyed our members after the first phase, and we asked them how many applications for loans are you sitting on that could be submitted once this is reopened. Just from New Jersey, and this wasn’t 100 percent of our members, we estimated about 50,000 loans totaling about $5 billion was just sitting there just waiting to be submitted.

When I think about the role that banks play there, supporting the government and being a conduit for getting this capital to all the small businesses—it’s really just a bridge, it’s to try to allow them to maintain their payroll of the next eight weeks or so. The stimulus money—I’ve heard people criticize the program and say it doesn’t offer monies for other purposes. It’s true, the majority of the money is intended for protecting your payroll. And if you use it for that purpose, it becomes a government grant, which is pretty significant. And PPP2 will hopefully hit more small businesses.

So, when I think of what banks are going to do to help reopen the economy, I think there’s going to be a tremendous amount of damage that’s been done to consumer and commercial borrowers. I think the banking industry is going to really be challenged by working with borrowers to help them get through this process while at the same time maintaining the strength of their own balance sheets as a business, as a company.

NJBIZ: One of the features of this downturn as opposed to the Great Recession was the fact that banks are now solid. This isn’t a financial system problem, it’s a public health crisis that’s caused the downturn. Is that your view as well? Are banks going to get through this OK? Are their balance sheets going to be strong enough to help out when the time comes?

JF: It’s a more complicated question than that. The answer is yes, we will, because we’re in a much better capital position going into this. I think the issue is again getting people back to work.

We at Magyar, two weeks prior to the governor issuing the 90-day loan deferment order, we were giving 90-day deferments to all of our customers. Again, we’re a community bank and we know these people and we’re going to help them out. But what happens after that 90 days—in theory, we’ll have six months, according to the regulators, for loan deferments—how do you make that mortgage payment after six months?

So, the key is going to be the economic recovery. If in six months, the economy is doing better, and people are back to work, it won’t have an impact. But having said that, it’s not only residential mortgage loans, it’s commercial real estate loans with tenants, those tenants—with nail salons—think of your typical strip mall in New Jersey, hair salons, pizza places, things like that, if there’s a downturn and a lot of these people can’t make their payments, so they’re asking for deferments also.

So, if in that six-month period things don’t turn around, it could turn into a financial event. I don’t think you’re going to see anything close to what happened in 2008/2009/2010 as far as the banking industry, but it could turn into a financial event if we don’t get the people back to work and people after three months or six months of deferment are unable to make any payments. Then it’s a whole different ball game, because we’ll have to deal with that as it comes and see what our regulators in the state and federal governments can do about that.

Investors Bank Chairman and CEO Kevin Cummings

Investors Bank Chairman and CEO Kevin Cummings – INVESTORS BANK

KC: We’ve deferred both residential mortgages for consumers in line with the government. New Jersey bankers and banks and national banks got together with the governor and agreed to a program of deferment of three months for residential loans, and then also working with our retail customers on the commercial real estate side—multifamily owners, things like that. And business owners, commercial industrial loans. We have worked with our customers.

And the good part about that is that the FDIC and the banking regulators have given us some leeway to step up and work with our customers. So, it’s a great combination of the government, the private sector, local government, all working together to get our society and our economy through this unprecedented pandemic.

JM: [I]t’s true, the industry and the banks are much stronger than they were the last time. This wasn’t a banking crisis. And the federal government has stepped up bigger and faster than the last time. I mean, the Fed alone has over $7 trillion in monies that they [sic] are putting into the economy. They put in place a big credit facility that the banks can use so that—banks that did a lot of PPP loans the first time around can go to the Fed, place those loans as collateral and get new liquidity to make more PPP loans. So that’s great, and the Main Street Loan Program is great.

The only caution I’d throw out there though is, depending on how long this goes on and how damaged both consumer and commercial borrowers become, it could begin to impact the strength of our banks’ balance sheets. If they have loans that are going bad, that will have an impact on them.

But I think we’re in a strong position for now, and hopefully the economy will open up and people will start to go back to work.

NJBIZ: Is there something else the federal government should be doing as far as you’re concerned? Will we need another round of federal aid?

KC: Well, certainly, I think there should be. You have the states that are looking for some additional funding, you have the health care system that’s looking for some additional funding because they’ve been put in a difficult position. So I think as we move forward into the summer, hopefully the federal government will come to the support of the states and the health care systems and hopefully those specific businesses that are impacted: hotels, potentially, restaurants, that have more of a burden as a result of this pandemic versus others that may be able to get back to normal more quickly.

What the government did, the program as it was written, PPP, was really for a whole bunch of people. Some of them needed it more than others. And I’d like to see a more targeted program later, in the summer, maybe as part of that health care and state and municipal government aid program.

JM: I think they’re going to need to do a third round of PPP. I think this money that they’ve just allocated could go away in a matter of days, maybe a week or so. And I still think unfortunately that there’ll be a lot of small businesses that weren’t able to get money. So, I think that’s something that should be considered. And I do believe that the federal government has to provide some support to state and local governments. State budgets and local budgets are just being slammed by this. Especially in the Northeast, with states like New York and ours that have just been hit so hard by COVID-19 and the amount of money they’ve had to spend on all these things. The federal government I think has to help subsidize that and support the states that have been hit so hard. And hopefully Congress and the administration will do that.

No one knows for sure how long this will last. That’s really the key: how quickly we can open up the economy. Because the sooner we open up the economy, the less long-term damage will have been done, and the sooner we see a recovery.
– John McWeeney, president and CEO, NJ Bankers Association

JF: I don’t think so, only because there were so many people in the first round geared up, and in the second round on Monday. And again, we had problems again in Round 2 with the SBA system shutting down and being very frustrated. And we were obviously dealing with a lot of phone calls from our customers saying, ‘Did you get me in the system?’ and we had to say, no, the system didn’t work properly at that point. But it seems to have slowed down now. It seems to be that the people who wanted these loans and knew about these loans and needed these loans are in the system. And I don’t see many more small businesses doing this.

Now everyone is interested in some of the other programs, things like the Main Street Lending Programs and some others that are supposed to be coming out, but I don’t think it will be necessary to have another PPP round. There might be another stimulus program that will help businesses, but I think that most of the people who are aware of it and want it have gotten it, especially from our community bankers. I know that a lot of us have been working around the clock to make sure that these loans were approved.

NJBIZ: In general, are you confident or optimistic that there will be a recovery of any shape?

JM: Well, there is a lot of uncertainty of course. No one knows for sure how long this will last. That’s really the key: how quickly we can open up the economy. Because the sooner we open up the economy, the less long-term damage will have been done, and the sooner we see a recovery. I’m absolutely confident that there will be a recovery. After all, our economy was extremely strong coming into this, this wasn’t caused by an economic, financial system breakdown. It’s a health pandemic. If we get our arms around that, I do think the economy will come back.

I’m not an economist; I’m no expert on the economy. You may see it come back sooner in some places than in others. Some of these states that are opening up now—I hope that it works, that there are no setbacks with COVID-19. Maybe we’ll start to see those states bounce back sooner. But I do think there will be a recovery and when it kicks in I think it will be a strong recovery. It’s just a matter of when.

JF: I think the governor’s taskforce is going to have a lot to do with whether the recovery is robust or not. I think that no matter what happens, we’re going to start out slowly at first, but what I am seeing, especially with the Paycheck Protection Program that we’ve been very involved with over the last month, businesses are getting geared up and ready to go.

The federal government provided capital through this PPP program. So they’re ready to bring people back in the restaurant, or in the office, or in the nonprofit organization, or whatever story you’re talking about, so they’re ready to gear up and go. That’s where I’m seeing some positive signs. They’re just not being allowed to do that now because of some very well thought out social distancing and stay-at-home edicts that the governor has given us. But I think businesses are ready, and people are ready, to get back to work. So we could see a rather quick recovery but we need to get people out of their houses and back to work.

KC: I am optimistic. I feel good about it. I’m concerned about the unknown.

Someone said to me this morning, he heard on the radio September a vaccine might be found. Until we can get that, I won’t be overly optimistic. I’m cautiously optimistic because it’s America. And as Warren Buffett said, don’t bet against America.

I certainly believe that this is going to be a game changer, it’s going to change the habits of society, business practices.

I believe that there was a trend of pulling people back into business; with this work from home, this might change it a little bit. And I think that, like New Jersey during the Sandy problem, we were lucky. I was talking to Gov. Christie, and he mentioned that they had a problem with the hurricane in 2011, Labor Day weekend, we got hit pretty hard in New Jersey, but at least it gave them a game plan for how to handle the big storm that came a year later.

Hopefully, the lessons learned here, that’s what I’m looking at, is what lessons have been learned here as to how we can manage any future crisis that might come along. Some of the bipartisan actions down in Washington, the leadership of local governors here in New York and New Jersey—that’s certainly something to give me some optimism.

But what I worry about is 18 months from now, when people start pointing fingers and the congressional investigations start on this SBA PPP program. And the people who weren’t in the field, who were sitting in offices or at their homes in Washington, what they’re going to say and how critical they might be in the future.

This article was update at 12:35 p.m. EST on May 11, 2020 to correct the amount of PPP loans provided by Investors Bank.

Jeffrey Kanige