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Quick fix to financial crisis? Won’t happen, warns RBC’s top executive

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RALEIGH, N.C. — Scott Custer, chairman and chief executive officer of RBC Bank, pulls no punches when asked if the banking crisis is going to end any time soon.

“We didn’t get ourselves into this overnight,” Custer said in a stop at WRAL on Tuesday. So when can we expect a solution? Certainly not for a few months, and perhaps not for “a year or two,” he replied.

Only days after RBC celebrated the grand opening of its gleaming downtown Raleigh skyscraper, Custer was in a somewhat somber mood as he met with WRAL-TV anchor David Crabtree and real estate broker Frank DeRonja, Jr. of York Simpson Underwood for a live Webcast interview.

“This isn’t something that’s going to be fixed tomorrow,” Custer said at midday, even as Wall Street headed south another 500 points. “This is a worldwide situation. This will take months, if not years, to resolve.”

The RBC leader, who also is chairman of the North Carolina Bankers Association, compared the spreading financial contagion to a wildfire in which entire neighborhoods, not just single homes, are at risk.

“We are part of a financial system,” Custer explained. “When the whole street catches on fire, your house is going to catch on fire, too, no matter how well it is built.”

The $700 billion legislation that President Bush signed last Friday has yet to restore calm, let alone confidence, to the markets. Credit remains extremely tight despite massive intervention by the Federal Reserve. Early Wednesday, the Fed also ordered an emergency half-point cut in interest rates.

Despite the lack of short-term improvement, Custer defended the legislation.

“I believe the consequences of inaction would have been almost tragic,” he said. Because “so many things are interconnected,” Custer said, the economic impact would have been widespread. “This is not only Wall Street but Main Street because so many companies are affected,” he added.

The bill has been improperly labeled as a “bailout,” he added, and the media as well as politicians wrapped up in an “election cycle” have helped sensationalize the situation.

To Custer, the bill is an attempt at a “broader fix” of the financial system rather than a “Band-Aid to fix a broken arm.”

Custer also talked with The Skinny and WRAL’s Cullen Browder about the who-what-when-where-why of the banking world’s greatest crisis in decades.

“The guilt runs in multiple directions,” he said. A mixture that includes “lack of oversight,” unreal expectations that housing values “would continue to rise,” and executives pushing edges to increase profits every quarter led to what he called a “perfect storm.”

Among the bank victims is Charlotte-based Wachovia, which could very well be dismembered between suitors Citigroup and Wells Fargo. Thirty years ago, Custer noted ironically, he launched his banking career “right here in Raleigh” at Wachovia.

Custer pointed out that banks were “overleveraged” with risky debt. To recover, he said, banks must “unwind” from those loans and “get back to more fundamental” business.

RBC has weathered the storms and fires, Custer added, because RBC has remained “focused on its customers.”

This year has been one of growth for RBC, which is owned by the Royal Bank of Canada. RBC, which just months ago dropped Centura from its name, closed on a $1.6 billion acquisition of Alabama National and moved its headquarters to Raleigh from its Centura roots in Rocky Mount.

Despite the Wachovia woes, Custer insisted that RBC was “very fortunate” to be in North Carolina, where the banks are “stable” and “generally in very good shape.” He also noted that the economy in the Triangle has fared better than many other metropolitan areas.

Frank DeRonja shared that view. He stressed that while the real estate market isn’t strong, it also isn’t in free-fall as it is in other areas, such as Florida. (Custer noted RBC does a great deal of business in the Sunshine State, which he said is suffering far more than North Carolina.)

“The Triangle market has been less frothy,” DeRonja said. “There has been less speculation, and therefore the market has been more stable.”

When the recovery begins, DeRonja added, the capital city area is poised to lead the way.

A just-published analysis by Moody's Economy.com ranked Raleigh among a handful of the nation’s more than 380 metropolitan areas – 14 percent – that are experiencing economic growth instead of recession.

“The pain is softened by the fact that we are at a better starting point when the rebound comes,” DeRonja said.

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