Royce Dugan's Blog: Banks look ‘very ugly,’ says Black-Scott

Interest rates will remain low, taxes will eventually increase, some large companies may spin-off and banks “look very ugly” in regards to their problem loans and write-downs, said a former Morgan Stanley & Co. managing director.

Banks have written down only a third of their problem commercial loans and weaknesses in the commercial real estate sector are just getting started, said Margaret Black-Scott, former managing director and vice chairman of the global wealth division at Morgan Stanley. “The banking situation looks very ugly.”

Black-Scott spoke before the local chapter of the Association for Corporate Growth at the River Club Tuesday.

She talked about what has happened in the economy from 1980 through 2009 and what businesses can do to survive, as well as her predictions on the future of the economy.

The signs of continued weakness suggest tax increases could be coming.

“There is a risk of higher taxes,” she said. “They will definitely come up at some point.”

Black-Scott said there will be more growth in the independent space and she sees large companies such as JPMorgan Chase & Co. (NYSE: JPM) and UBS spinning off their domestic business.

Despite the weaknesses there are some positive signs in sectors such as residential real estate, and low interest rates are bringing some stability to a chaotic economy, she said.

“The good news is, Jacksonville is in the top 100 metro areas in the nation,” she said. “The problem is Jacksonville is 96th in metro areas”

Black-Scott said she expects interest rates to stay low through the next election cycle.

Other positive signs include improvements in housing starts, real gross domestic product and “almost $4 trillion in cash sitting on the sidelines waiting to go somewhere,” she said. “We’re already in the cycle where I hope the worst is behind us but there is still a disconnect.”

Black-Scott advised business owners to:

• Bullet-proof your business “because the shots are still coming.”

• Know yourself. “What is your temperament in the risks of business.”

• Be alert, flexible, diversified but be careful and measured in the risks that you take.

• Pay attention to taxes and expenses

• Think about the consequences and what could happen.

• Maintain balance and perspective.

• Be patient.

• Be decisive.

On Nov. 3, the ACG will host speaker Pat Blount, President and CEO of Benewolf on the topic “Halloween is not over: The frightening truth inside the banking industry.” More information can be found at http://chapters.acg.org/northflorida/.
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