Moving away from the struggling housing sector, JPMorgan Chase & Co is seeking new markets to expand their loan business into. The US housing meltdown of the last decade brought notable damage, and many banks are seeking recovery.
As the country’s largest banking conglomerate, JPMorgan found promising loan opportunities in the Midwest – extensive loan opportunities for local farmers who had competitive income levels, as well as collateral, because of the value surge of grains and farmlands.
The banking highflier was able to grow the farmer-lending portfolio to $1.1 billion, a 76 percent improvement, between 2008 and 2015, as based on their published year-end reports. Their move led a trend to other Wall Street financial institutions, as the total US farming sector debt is projected to raise up to $427 billion for this year. According to the US Department of Agriculture, this amount was significantly increased from the $317 billion debt value (inflation-adjusted) one decade ago. The alarming debt values are approaching the same levels as the farm crisis in the 1980s.
Current Agricultural and Banking Situation
The Wall Street Banks, including JPMorgan & Chase Co, are bailing the agri-sector amid the intensifying US-China trade war and the quick downward trend in farming revenues. This result is taken from Reuter’s analysis of farm loan reports sent to the Federal Deposit Insurance Corporation.
The nation’s top 30 banks’ agricultural loan portfolios are currently valued to $18.3 billion, falling by $3.9 billion, which is a 17.5 percent decline. This data analysis is dated up to March 2019.
The list of the top 30 banks is measured through their total assets in the first quarter of 2019, as well as their loan performance metrics filed with the FDIC in the last three months. Banks owned by the same holding company were grouped together in the report.
Most US agricultural products, including soybeans, the nation’s most valuable export, have seen a significant sales decrease because of the imposed tariffs by China and Mexico. These tariffs were only done as a retaliation for the US moves on those countries’ export products, too. The trade war has done nothing but to strain the economy even further after problems with oversupply and lower prices.
According to agricultural economists and legal experts, backing out of the nation’s biggest banks come from the excessive decrease in cash flow, many farmers are pushed to retire early, a large number of farmers are declaring bankruptcy, as well. In fact, there is an increasing amount of agriculture-related lawsuits filed in federal and state courts.
There is a reported increase in the filing of bankruptcy protection for small farmers, also known as Chapter 12. From 361 filings in 2014, federal court records show that they have recorded 498 Chapter 12 filings in 2018.
A bankruptcy attorney from Minneapolis, Barbara May said that her phone regularly receives calls due to many farmers asking for help. She adds, “Their banks are calling in loans and cutting them off.”
Many surveys highlight that demand for credit continues to increase, as was reported by the Federal Banks of Chicago, St. Louis, Kansas City, and Minneapolis. Most US farmers depend on loans so they can buy or refinance farmlands, manage operational expenses, and purchase their seeds and other raw materials. If loan options come close to none, a farmer and his farm’s survival will be severely threatened, especially now, when incomes have been cut by half for five years now.
According to a Wisconsin-based farmer, Gordon Giese, he was forced in the last year to sell his farmhouse, parts of his land, and most of his cows just so he can clear his debts. He and his two sons kept trying but failed to get approved for a line of credit for the farm. Giese said, “If you have any signs of trouble, the banks don’t want to work with you. I don’t want to get out of farming, but we might be forced to.” His sentiments echo hundreds of other struggling farmers.
Going back to JPMorgan, their units insured in the FDIC was cut back 22 percent or $245 million in terms of farm lending from latter 2015 to March 31st, 2019.
A company representative shared that it has not “strategically reduced” their business in the farm sector. They might have reduced lending to farmers, but they are still present in other agri-businesses like food companies and processors.
Small Banks Receive Federal Backing
On the other side of the financial industry, there is a slow but constant ongoing growth in the lending portfolios in the other smaller financial players as well as the Farm Credit System, powered by the government. This growth is still considered quite slow, so banking experts see this as a sign that everyone is quite cautious about investing in the agricultural sector. From a 6.4 percent growth rate last December 2015, it is recorded to be at 3.9 percent in March 2019.
Many minor banks in rural areas are more reliant on farm lending portfolios as their business options are fewer in local communities. But agriculture-centered areas continue to decrease in population, and the number of domestic enterprises is shrinking, too, as reported by the South Dakota Bankers Association.
The smaller banks began turning to the federal government for their protection because problems continue to rise. They now depend on a US Department of Agriculture program that can guarantee up to 95 percent of loans so that even higher-risk farmers can be approved by the banks for lending.
The nation’s big banks continue to trim their portfolios after 2015.
Capital One Financial Corp.’s holdings related to farm lending portfolio have seen a considerable decrease in their FDIC-insured insured units, reported at 33 percent shrinking since December 2015. Capital One declined requests for an interview.
US Bancorp’s FDIC-insured farm loan portfolio has also reported going down by 25 percent from their late 2015 report. The bank refused to provide comment on the issue, as well.
BB&T Corp. also declared 29% falling after its summer 2016 high at $1.2 billion. According to a representative, the decline is affected mostly by aggressive terms by competitors and the company’s conservative approach to high-risk clients.
Demands for Lending Continues to Rise Despite Issues
National and local lenders are hesitant to take risks in the sector that is not their business core, according to Curt Hudnutt from Rabobank North America, a significant lender in the agricultural industry.
In March of 2019, FDIC-insured banks reported that around 1.53 percent of farm loans were past due for at least 90 days, and they have stopped accumulating interest because even the lenders doubt the credits will be repaid. This value, known as noncurrent rate has doubled from the 0.74 percent it was back in 2015.
These aforementioned noncurrent rates are even higher on the level of the major Wall Street Bank’s farm loans.
Bank of America’s noncurrent rate for farmer lending has rushed to a high 4.1 percent this year if compared to 0.6 percent in December 2015. For the time being, Bank of America has decided to cut the value of the farm lending portfolio from $3.31 billion to $2.47 billion, about 25 percent, according to the latest data supplied by the FDIC. Bank of America has declined to comment on its recent lending decisions.
Overall, the whole banking community is increasingly aware of all the struggles experienced by small-town farmers but are decided on their reservations due to extremely high risks.