FED Senior Loan Officer Opinion Survey

The Federal Reserve Board published "The July 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices", and here are the key messages with my emphasis:

In the July survey, domestic banks indicated that they continued to tighten standards and terms over the past three months on all major types of loans to businesses and households, although the net percentages of banks that tightened declined compared with the April survey. Demand for loans continued to weaken across all major categories except for prime residential mortgages. The fractions of domestic banks reporting additional weakening in demand in this survey were slightly lower than those in the April survey for C&I loans and home equity lines of credit, approximately the same for commercial real estate (CRE) and nontraditional residential mortgages, and slightly higher for consumer loans.
In response to a special question, domestic banks pointed to decreased loan demand and deteriorating credit quality as the most important reasons for declines in C&I lending this year. In response to a second special question, most banks reported that they expected their lending standards across all loan categories would remain tighter than their average levels over the past decade until at least the second half of 2010; for below-investment-grade firms and nonprime households, the expected timing is later, with many banks reporting that standards for such borrowers will remain tighter than average for the foreseeable future.

There are more or less fair commentaries, in my view, by bank analysts, like these from Danske Bank and BNP Paribas. However, couple of them are forcing to raise the eyebrows.

Tobias Levkovich, the US Equity Strategist at Citigroup, has a clear bull's message (my emphasis):

The Federal Reserve Board survey generates more predictive recovery evidence. The senior loan officers’ survey continues to show that tightening trends are easing back, with the just released July polling data finding that a net 31.5% of large banks are tightening their lending criteria versus a net 83.6% last October. Moreover, the survey data has often led credit market conditions, arguing for some further narrowing of spreads which often move in tandem with equities. Historically, this survey has been a strong lead indicator for business activity with a nine-month lag, supporting renewed investment in human, physical and working capital well into 1Q09; and in kind this should support earnings trends.

Errr ... "tightening trends are easing back"! Think twice of "trends" to be sure you get it right that "net 31.5% of large banks are tightening their lending criteria..."!

Whatever, but the economists at Societe Generale brought the "killer note", click to enlarge, my marks.


Do I get it wrong? Well, let's read once again. This sentence is the killer:

"The latest survey, covering the period from May to July, showed an across-the-board improvement in lending terms."