Wall Street banks abandon efforts in the troubled US agricultural sector

CHICAGO / WASHINGTON (Reuters) – Following the collapse of the US real estate market in the United States in the late 2000s, JPMorgan Chase & Co looked for new ways to expand its lending business beyond the industry. mortgage in trouble.

The country's largest bank has uncovered exciting new opportunities in the rural Midwest – loans to US farmers who had plenty of income and guarantees in the face of soaring grain and farmland prices.

JPMorgan increased its farm loan portfolio by 76% to $ 1.1 billion between 2008 and 2015, according to year – end figures, while other Wall Street players gathered in the area. The total US farm debt is expected to reach $ 427 billion this year, up from $ 317 billion US adjusted for inflation ten years earlier and levels close to those seen in the 1980s agricultural crisis, according to the report. the United States Department of Agriculture.

JPMorgan and other Wall Street banks are heading to the exit, according to a Reuters analysis of farm loan holdings they reported to the Federal Deposit Insurance Corporation (FDIC).

The agricultural lending portfolios of the country's 30 largest banks declined $ 3.9 billion to $ 18.3 billion from the peak of December 2015 to March 2019, according to the analysis. This is a decrease of 17.5%.

Reuters has identified the largest banks by their quarterly reporting of loan performance indicators from the FDIC and has grouped banks owned by the same holding company. Banks were ranked by total assets in the first quarter of this year.

The withdrawal of agricultural loans by the largest banks in the country, which has not been reported before, comes from the fact that the contraction of cash flows is pushing some farmers to early retirement and others to bankruptcy, according to reports. agricultural economists, lawyers and a review of hundreds of lawsuits in federal and state courts.

Sales of many US agricultural products – including soy, the country's most valuable agricultural product – have fallen sharply since China and Mexico imposed tariffs last year in retaliation for US products . Losses from the trade war continued to weigh on the agricultural economy, which was already suffering from a glut of global supply and low commodity prices.

Filings in Chapter 12 of the Federal Court, a type of bankruptcy protection primarily for small farmers, increased from 361 in 2014 to 498 in 2018, according to Federal Court records.

"My phone is ringing constantly. These are all farmers, "said Minneapolis-St. Paul May, bankruptcy attorney in the region. "Their banks call the loans and cut them."

Surveys show that demand for farm credit continues to grow, particularly among Midwest grain and soybean producers, said regulators at the Federal Reserve, Chicago, St. Louis, Minneapolis and Kansas City. US farmers need loans to buy or refinance land and to pay for operational expenses such as equipment, seeds and pesticides.

Fewer loans can threaten the survival of a farm, especially at a time when farm income has almost halved since 2013.

Gordon Giese, a 66-year-old corn and dairy farmer from Mayville, Wisconsin, was forced to sell most of his cows, his farm, and about a third of his land to clear his farm's debt. Now his wife is working 16-hour shifts in a retirement home to help pay his bills.

Giese and two of her sons tried and failed to get a line of credit for the farm.

"If you have any signs of trouble, the banks do not want to work with you," said Giese, whose experience echoes dozens of farmers polled by Reuters. "I do not want to go out of agriculture, but we might have to do it."

US Federal Reserve Governor Michelle Bowman told an agricultural banking conference in March that the sharp drop in farm incomes was a "troubling echo" of the agricultural crisis of the 1980s, when prices plummeted. crops and land, resulting in mass defaults and foreclosures.

FDIC-insured units of JPMorgan Chase reduced their holdings of farm loans by $ 245 million or 22% between the end of 2015 and March 31 of this year.

JPMorgan Chase did not dispute the findings of Reuters, but said it did not "strategically reduce" its exposure to the agricultural sector. The bank said in a statement that it has a broader definition of agricultural credit than the FDIC. In addition to farmers, the bank includes processors, food companies and other related activities.

FEDERAL BACKING FOR SMALL BANKS

The decline in agricultural lending by major banks occurred despite continued growth in the agricultural loan portfolios of the entire banking sector and the government-sponsored agricultural credit system. But overall growth has slowed considerably, which banking experts have described as a sign that all lenders are becoming more cautious about the sector.

The four-quarter growth rate of agricultural loans of all FDIC-insured banks, which provide about half of all agricultural credit, slowed from 6.4 percent in December 2015 to 3.9 percent in March 2019. Growth in comparable agricultural lending holdings in Crédit Agricole The system has also slowed down.

Many small rural banks are more dependent on their agricultural loan portfolios than domestic banks because they have little alternative credit in their communities. Curt Everson, president of the South Dakota Bankers Association, also found a decrease in the number of businesses in agricultural cities.

"All you have are farmers and businesses that work with, sell or buy farmers," Everson said.

As risks increased, some small banks turned to the federal government for protection. They have set up a US Department of Agriculture program that guarantees up to 95% of a loan to help rural and community banks lend to high-risk farmers.

Big Wall Street banks have been steadily reducing their agricultural portfolios since 2015, after strengthening their lending in this sector as a result of the financial crisis.

Capital One Financial Corp's (COF.N) Farm credit holdings in FDIC-insured units fell 33% between the end of 2015 and March 2019.USB.N) shrunk by 25%.

Capital One Financial Corp. did not respond to requests for comment. US Bancorp declined to comment.

Farm credit holdings of BB & T Corp (BBT.N) have fallen 29% since the peak reached in the summer of 2016, which stood at $ 1.2 billion. PNC Financial Services Group Inc. (PNC.N) – which published one-page ads in magazines specializing in the agricultural sector to promote "access to credit" over the past period – has reduced its agricultural loans by 12% since 2015.

BB & T said in a statement that the drop in its agricultural loan portfolio "is largely due to the aggressive pricing and conditions" proposed by its competitors and its "cautious and disciplined" approach to risk.

PNC said growth in its agricultural loans was being held back by customers who were reluctant to take on new debt, as well as increased competition from the farm credit system.

REQUEST FOR READY STILL INCREASE

Lenders avoid putting risks in a category that is not at the heart of their business, said Curt Hudnutt, head of rural banking for Rabobank North America, a leading agricultural lender and subsidiary of the Dutch financial giant Rabobank Group.

In March of this year, FDIC-insured banks reported that 1.53% of their farm loans had been in arrears for at least 90 days or had ceased to accrue interest as the lender had doubts about their repayment. This so-called non-current rate doubled from 0.74% at the end of 2015.

Non-current rates were much higher for agricultural lending by some of the major Wall Street banks. The non-current rate of Bank of America Corp. for agricultural loans in units insured by the FDIC jumped from 0.6% to 4.1% by the end of 2015. At the same time, the bank reduced the value of its agricultural loan portfolio by about a quarter by report to the same year. last period, from $ 3.32 billion to $ 2.47 billion, according to the most recent FDIC data.

Bank of America (BAC.N) refused to comment on the data or its loan decisions.

For PNC Financial Services, the non-current rate was close to 6% at the end of March. It reduced its farm loan portfolio to $ 278.4 million from $ 317.3 million at the end of 2015.

David Oppedahl, chief economist for the Federal Reserve Bank of Chicago, said the banking sector was becoming more aware of the number of struggling farmers.

"They do not want to be those who are caught with bad debts," he said.