Look for Financial Sharks in Alabama Waters

The term ‘loan shark’ may take on more meaning in the upcoming months, according to Dr. Benton Gup, professor of finance and holder of the Robert Hunt Cochrane/Alabama Bankers Chair.

Don’t be surprised if one of the state’s top banks becomes a takeover target by an overseas financial institution, says Gup. “Alabama has four of the top 50 bank holding companies in the country, and they may become takeover targets by an overseas institution seeking a presence in the Southeastern United States.”

Gup, who has just finished a new book that looks at the future of banking from a global perspective, also says to expect increased consolidation in the banking industry.

The reason? “Some of the large banks will fail,” Gup says, “and that will serve as an impetus for consolidation.” And why will some of the banks fail? Simple, says Gup. “There will be more bad loans as the economy softens, especially in the subprime market, which are loans made to individuals with low credit ratings.”

The Sept. 11 terrorist attacks will exacerbate problems for banks because as the economy softens even more, unemployment will increase, there will be more defaults on loans, credit card debt will go up and people will be less able to make monthly payments.

Gup says you also can expect more banks to move into “payday lending,” despite the fact that many banking observers call the practice “predatory lending” and there is a growing impetus to reduce or stop the practice. Payday lending is characterized by short duration loans at high annual rates that can approach 400 percent. Most loans are between $300 and $700 for two-week terms, with one two-week rollover if the borrower wants to extend the loan.

And if you are one of those who pay your bills on-line, you can look for increased use of electronic banking as banks become more adept at dealing with customers on-line. But Gup says don’t expect on-line banking to totally replace those important face-to-face relationships that many people prefer when it comes to their money.

Dr. Benton Gup can be reached at 205/348-8984 (office), 205/345-5035 (home) or bgup@cba.ua.edu.