Finance and Economic

Wall Street is a long way from St. Louis, in more ways than one.

So it’ll take some time to sort out just how the financial turmoil that shook lower Manhattan on Monday will play out in our local economy.

But one effect from the collapse of Lehman Bros. will happen fast, experts say: Borrowing money will get harder.

Mortgage credit already has been tight for months, as big banks unwind years of risky lending. That tightness likely will spread further into business lending, experts say, as the pool of money available at the top of the system shrinks, and borrowing becomes more expensive.

Banks are already paying more to borrow from each other. LIBOR, the interest rate they pay other banks, jumped nearly a full percentage point overnight Monday on the news of Lehman’s imminent bankruptcy filing. And several experts Monday said they expect the interest rates banks charge borrowers will go up, too.

Meanwhile, there will be less money to go around, said Todd Gormley, an assistant professor of finance at Washington University, as not just Lehman but every bank with a similar portfolio watches its assets lose value, giving it less to lend out. The risk is that credit markets grind to a halt.

"You just keep going down and down and down," Gormley said. "It sort of creates this cycle, and what’s happening with Lehman has the potential to push this even further."

It likely will do just that, said Scott Colbert, director of fixed income investments at Commerce Trust Co. in Clayton. Lehman supported some $600 billion in lending, most of which will be wiped out in its bankruptcy. But it’s a direct result of the over-expansion of borrowing that fueled much growth over the past decade.

"We have to cleanse ourselves of the excess in the financial market," said Colbert, who noted that the cleansing began with the forced merger of Bear Stearns to JPMorgan Chase & Co., continued last week with the takeover of mortgage giants Fannie Mae and Freddie Mac, and expanded with Lehman’s collapse no checking account payday advance. "It’s only through what is basically financial credit destruction that we get this back on track."

Along the way, small businesses will suffer, said Jack Strauss, an economics professor at St. Louis University. It’ll be harder for them to borrow, and thus to hire people and buy materials and expand.

"A lot of entrepreneurs are going to be hurt," Strauss said. "They’re not going to be able to get credit from a bank. Small business owners and large businesses are going to find their cost of capital increase, and maybe even dry up."

But there is still growth, said Chuck Leuck, regional vice president for Enterprise Bank & Trust Co. in Clayton. Deals are still getting done, banks are just being more cautious about them.

"For people who are doing their homework, access to capital is there," Leuck said.

A lot depends on the type of business, and how well-established it is, said Bob Cockrell, a commercial relationship manager with Montgomery Bank in Des Peres.

Most money doesn’t come from Wall Street, he noted. There’s still plenty of cash flowing through local banks that take in deposits from local customers and lend it to local businesses. And solid local companies can still access it.

"If you’re a strong borrower with (good) credit you’re not going to have any trouble getting a loan," Cockrell said.

"Will you have to shop around a little? Maybe. But I don’t think Lehman Bros. is going to have any impact at all on that market."

tlogan@post-dispatch.com | 314-340-8291

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