“We are heading into a short recession” with the economy stalling for maybe six, maybe nine months next year, predicts Gerry Cuddy, chief executive at Beneficial Bank, citing a slowdown in real estate development and other economic activity in recent months.
He’s not the only one. Standard & Poor’s said in a report Dec. 4 that a recession next year or the year after looks a little more likely after the long recovery and expansion that began under President Obama and accelerated during President Trump’s first year. If not actually shrinking the economy, Trump’s “tariffs and other protectionist trade policies” and higher Federal Reserve interest rates should slow demand next year and push growth below 2 percent a year — half Trump’s goal — by 2020, and for “the longer run,” said S&P chief economist Beth Ann Bovino.
Companies are still hiring, and so far it looks like a slowdown, not a recession, Jim Meyer, chief investment officer at Tower Bridge Advisors in West Conshohocken, told clients last week. But a slowdown’s momentum can be “hard to stop, especially if trade wars expand and worldwide growth rates also decline,” he added.
U.S. stocks, overpriced relative to their profit growth prospects, will likely be “20 percent lower by April to June,” though foreign stocks will likely lose less because they haven’t run up so high, predicts Tom Piersanti, a Philadelphian who heads listed equity-options trading at BGC Brokers' Mint Partners in New York. He was interviewed Tuesday before the market’s three percent drop that day.
Cuddy made his remarks to more than 400 at the Union League at the yearly Christmas-season gathering of St. Joseph’s University’s real estate and construction advisory board, honoring Pete Davisson, who with his partners resurrected the Jackson Cross commercial real estate brand in the depths of the last recession.
If the economy slows on schedule, banker Cuddy, at least, will be insulated: The chief executive and chairman of Beneficial Bancorp is anticipating a $9 million-plus cash-and-stock pay day when his planned sale of Philadelphia’s largest and oldest remaining bank to Wilmington-based WSFS proceeds as scheduled next year. Cuddy will stay on as a vice chairman.
Letting WSFS take over is “a good thing for the Delaware Valley," Cuddy told the audience, because it will be able to make bigger loans. Rodger Levenson, the proposed chief executive of the merged banks, plans to shut 30 branches and plow savings into better technology so the enlarged WSFS can better compete with big national banks and upstart fintech lenders.
You might think the threat of a slowdown in corporate profit growth and economic expansion could make a banker such as Cuddy cautious, given the Philadelphia area’s chronically slow growth. Analysts say that slow growth was a factor in Beneficial’s decision to sell.
But Cuddy said local business factors are less important than they used to be for investors, who need to know more about foreign trade, automation and other big-picture factors than in the past, if they’re going to plan well.
Unlike Richard W. Vague, the Philadelphia banker-turned-investor and philanthropist who says his research shows out-of-control private debt is the usual cause of recessions, Cuddy says he’s not worried about rising corporate and consumer borrowing.
To the contrary, Cuddy takes it as a good sign that lenders still are locked in what he calls “fierce” competition in a borrower’s market for Philly-area business loans. That assumes that borrowers have a pretty good idea of their prospects and what’s good for them, as if digital know-how has helped repeal the old business cycle.
Cuddy is also a fan of President Trump’s Opportunity Funds and Opportunity Zones tax break for developers and their investors, which assumes cheap financing can create its own demand for new projects.
Beneficial, meanwhile, has been funding mid-sized private developers in old industrial suburbs (Phoenixville and Lumberton) and city neighborhoods (South Kensington, Passyunk Avenue and Manayunk’s watery Venice Island.)
When WSFS’s blue signs and radio-station-like logo replace Beneficial at offices in Philadelphia, South Jersey and the Pennsylvania suburbs, Cuddy and his new bosses, led by Levenson, hope they’ll be making more loans to bigger developers, with a little help from Uncle Sam. Both companies wrote off extensive losses in the last downturn, but still managed to stay independent and grow by absorbing smaller banks, unlike bigger rivals such as Wachovia and Wilmington Trust, which were forced out of business.
In a bit of unfinished business from the last recession, former Wilmington Trust president Robert Harra Jr. and three colleagues face sentencing in federal court in Delaware next week for raising capital from the government and private shareholders while obscuring a steep drop in loan values in the late 2000s.
Cuddy told the St. Joe’s crowd that he’s worried less about the Philly area’s long-term prospects than he is about the ballooning federal budget deficit, which government accountants tell us has soared since last winter’s Trump tax cuts. The deficit rose to $779 billion in 2018, a 17 percent jump that represents an unusual case of the economy and the deficit expanding at the same time.
The nation needs leaders, Cuddy says, who will balance the budget, as the government did after World War II. He didn’t specify whether that means reversing the tax cuts, or cutting Medicare, Social Security or military spending, or what, exactly.
In good times or bad, there’s more to life than business, Cuddy concluded. Denying that he’s any model of holiness, Cuddy still urged the St. Joe’s grads to “catch up on your [Saint] Ignatius,” and seek spiritual guidance from the sainted founder of the Jesuit order of priests who run the college.
St. Ignatius’ teachings, in Cuddy’s telling, accommodated not only popular modern spiritual practices such as “meditation and mindfulness,” but also "the Magis,” a Jesuit ideal that Cuddy defined as finding your purpose in doing more for others. Which Cuddy, at least, will be able to afford a little better after he sells his shares in old Beneficial, recession or no.