So, Northwest Bancshares Inc., parent company of Northwest Savings Bank, is paying a special dividend to its shareholders. And the reason behind it is interesting.
As we reported Monday, the Warren-based Northwest will pay a dividend of 12 cents on May 16 to shareholders of record as of May 2, over and above its regular dividend.
The reason? Northwest can't find anything more profitable to do with the money. I summarized chairman William Wagner's explanation in Monday's article; here is his statement in full:
"The Board of Directors of Northwest Bancshares Inc. recognizes the amount of excess capital our company is carrying and our limited ability to leverage this capital given current market and regulatory challenges. They also considered the fact that persistently low interest rates have significantly diminished our shareholders' investment yields and cash flow. Given these considerations, our Board felt that it made sense to return some of our excess capital to our shareholders at this time."
My exegesis: "We have plenty of money, but the economy's still pretty lousy. The government wants us to lend, but also doesn't want us to take too much risk. Our shareholders could use the money. So what else is a bank to do?"
I think Northwest's dilemma illustrates something important about our economic recovery efforts.
Since the 2008 financial crisis, the federal government has tried to jump-start the economy by encouraging lending in various ways. There's nothing wrong with that per se. But it seems these programs keep bumping up against the fact that, for lending to increase, people need a good reason to borrow.
But people are still paying down debt, still worried about their jobs, still cautious about spending. Businesses, seeing limited demand, hold back on investing. And the recovery remains tepid.
Consider, for example, the Small Business Lending Fund. As the name implies, it is intended to help community banks invest in small businesses. But the U.S. Treasury was able to disburse only $4 billion of the $30 billion it was allocated, and even that smaller amount is not spurring lending as much as was hoped, though local banks seem to have bucked the trend. (Eighteen Pennsylvania banks participated; Northwest is not among them.)
I think the real economy has bigger problems than just access to business capital. Regional and community banks want to lend, but pumping more gas into an engine doesn't help if it's firing on only two cylinders.
Banks, and the rest of us, need a healthier real economy. If we had one, Northwest wouldn't be issuing a special dividend; it would be lending out that money with a view toward raising its regular one.