Results of the first quarter Phoenix Management “Lending Climate in America” Survey signal that lenders’ expect private equity regulation will occur despite the outcome of the presidential race.
More than half (57%) of lenders responded that regardless of the presidential outcome or economic climate, PE regulation will be reviewed in 2012. While proposed changes to the industry may not be fully implemented in 2012, the future will eventually yield less favorable tax treatment and added oversight. Twenty eight percent of lenders believe that the attention private equity sponsors are receiving is being exacerbated by the presidential race and will likely subside over time. Seven percent of respondents believe the net effect of private equity firms as financial buyers is positive. With the current state of the recovery and abundance of sidelined capital, regulators would have a tough sell implementing changes in the tax code that would reduce PE deal making activity. Six percent suggested that even industry insiders acknowledge their favorable tax treatment. The final 2% of respondents chose “Other”.
Domestic lending expectations yielded a double digit positive gain in Q1 2012 versus the expectations in the previous quarter. The overall index for all domestic lending segments increased by 11% on the diffusion index compared to last quarter’s survey and a gain of 28% compared to six months ago. Respondents indicated that, on average for all domestic lending categories; 40% have expectations for increased loan demand (versus 23% in the prior quarter). Only 8% of lenders in Q1 2012 anticipate overall domestic lending to decline which is compared to 11% from the previous quarter. All three major domestic commercial lending categories including corporate, middle market and small business yielded higher expectations for domestic lending in the first quarter of 2012 versus the prior quarter.
“I was pleased to see the overall optimism that lenders are showing about lending,” says Michael Jacoby, Phoenix Senior Managing Director and Shareholder. “However, their predictions for the economy are more mixed with positive expectations for economic growth and declining expectations for macroeconomic indicators.”
For the third straight quarter, respondents’ customers making new capital investments in the next six months was the leading growth expectation in the survey (57%). Thirty-eight percent of lenders believe their customers will hire new employees during the next six months which is a 16% increase from the previous quarter. Thirty six percent responded their customers are planning on making an acquisition; higher by 7% from the previous quarter. Twenty nine percent of lenders anticipate their customers to introduce new products or services in the next six months; 3% lower than in Q4 2011. Twenty eight percent believe their customers will enter new markets in the near term; higher by 8% from the previous quarter. Twenty two percent expect their customers to begin to raise new capital compared to 22% from the previous quarter. Five percent of respondents believe their customers will conduct “Other” activities in the near term.
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