Kathryn D. Karlic - Vice president with M&T Bank -- Gazette.Net







Share on Facebook
Share on Twitter
E-mail this article
Leave a Comment
Print this Article


Click here to see the video

Kathryn D. Karlic is group vice president with M&T Bank, leading Investment Management for Wealth Advisory Services, Enterprise Solutions and Product Management for fixed income, equity and alternative assets. She is a member of the Investment Policy Committee and Capital Markets Committee. Before joining M&T in January 2010, she held executive positions at General Electric Asset Management, including president of institutional sales and marketing. She also was director of research for fixed income and portfolio management at CitiGroup. She is a former member of the U.S. Treasury Borrowing Advisory Committee. Q: What challenges or obstacles does Maryland face as it tries to recover from the Great Recession? A: Since 2004, Maryland’s economy has generally outperformed the U.S. This strength was principally derived from strong employment levels, solid gains in worker productivity, and significant federal spending in the state. During the Great Recession, Maryland was more resilient than the U.S. In 2008, Maryland GDP [growth] was 0.9 percent vs. -0.3 percent for the U.S. In 2009, Maryland experienced a negative GDP year for the first time since 2004; a decline of 0.8 percent vs. 3.5 percent for the country as a whole. For 2010 Maryland’s economy grew roughly the same as the nation, at 2 percent, for the early phase of the recovery. What we have seen, however, through August 2011 is slower growth for Maryland relative to the U.S. One key issue facing Maryland is the recent decline in federal spending. Over the past decade, federal spending in Maryland has doubled. However, we saw a decline in federal spending in 2010 and expect to see another drop in 2011. Maryland’s 5.1 percent share of federal spending is much higher than its share of national GDP of 2 percent. It is possible that a government which is facing continued budget constraints could continue to cut spending in Maryland, which would create a stiff headwind for the state. In addition, if the so-called supercommittee fails to reach an agreement on deficit reduction, that could trigger $1 trillion in defense cuts and up to 36,200 jobs could be lost in Maryland — according to an economic impact analysis conducted by Economic Modeling Specialists and Stephen Fuller, director for the Center for Regional Analysis at George Mason University. Q: What are the state’s economic strengths? What are its weaknesses? A: Maryland has enjoyed stronger personal income growth than the national average (5.1 percent vs. 1.8 percent), and its jobless rate continues to be lower than the national average (7.4 percent vs. 9.1 percent). But private-sector job growth has fallen behind and continues to struggle. So what we have is an economy where incomes are growing for those who are still employed, and we have a lower number of unemployed than most states; however, we continue to see slow job growth, and the leading indicator index implies continued weakness into 2012. Professional services, education/health care, and trade/transportation have led the recovery for Maryland. In fact, these three sectors were the only sectors to experience positive job growth during the last 12 months of 1.1 percent, 1.7 percent, and 1.9 percent, respectively. Construction, leisure and hospitality, and financials have been the laggards. Q: What role can, or should, a so-called “innovation economy” play in this recovery? A: Innovation has been an important part of most successful economies. And a common foundation of a successful economy is the efficient utilization of resources. Whether you are talking about capital and labor, or ideas and technology, the ability of an economy to efficiently utilize its resources plays a large role in that economy’s progress. Given that we are becoming more of a service economy as a nation, it may be that having resources that favor an innovation economy will prove increasingly valuable down the road. Innovation-driven sectors (especially those linked to higher education and health care) are less cyclical, and serve as a buffer against economic downturns. Several locations worldwide have developed innovation economies, including nanotechnology in Boston, digital media in Seoul, biotechnology in India and information technology in Silicon Valley. Several elements are needed since innovation is not bound by a geographic advantage of raw materials, but rather by human capital, sound infrastructure and the quality of living that exists. Maryland has many of the essential elements to foster an innovation economy. The Milken Institute ranks the state second in leveraging science and technology to promote economic development, Maryland schools rank No. 1 in the nation for the third year in a row and according to the Farmers Insurance Group of Companies, the Bethesda-Gaithersburg-Frederick community is among the top 20 safest among large metro areas. Harnessing these strengths should and can play a role in Maryland’s innovative future. Q: Maryland’s unemployment rate is significantly lower than the national average, but remains well above its pre-recession levels. What sectors show the most promise for job creation and how can the state foster that job growth? A: We expect the leading industries mentioned above (see Question 2) to continue to drive us toward a slow recovery. The manufacturing and government sectors could offer a possible surprise to the upside, depending on legislation that is being considered in Washington. Between September 2007 and September 2011, Maryland added 18,200 government jobs, which represented the second-fastest nominal growth reported among the states. If current spending proposals are able to pass through to approval and implementation, that could provide a boon to our manufacturing base. Those two sectors turning to positive growth would certainly accelerate Maryland’s recovery from the Great Recession. Once job growth picks up, the unemployment rate is unlikely to come down right away, and may even creep upward, as an improved job market will lure “discouraged workers” back into the “unemployed” bucket, as they begin searching for jobs again. As of now, that group is not counted in the unemployment rate. This is the pattern typically seen during a recovery. Q: What’s the appropriate balance of private- and public-sector jobs in Maryland? Explain. A: Given Maryland’s proximity to Washington, we should expect its reliance on public-sector employment to be higher than most states. Historically, Maryland has had roughly 20 percent of its work force in the public sector. This can lead to more stability during economic downturns, but can also lead to slower growth during economic expansions. During economic downturns, private-sector jobs are usually hit the hardest, and that is what we have seen over the past recession. Given Maryland’s relatively low unemployment rate vs. the nation as a whole, it is apparent that its stronger presence in the public sector has helped it to be a more stable economy. However, federal spending in the mid-Atlantic region will probably shrink year-over-year in 2012 which will represent the first back-to-back decline in federal spending in Maryland since 2004-05. It appears the Maryland job mix has been solid for at least the last decade and may quiver a bit while the ebbs and flows of federal spending/budget deficits settle out in Washington D.C. Q: What role should the banking industry play in hastening a recovery in Maryland? What specific steps should banks take? A: Banks need to continue to lend responsibly and actively work with individuals and businesses to tailor financial plans that meet their specific needs and goals. Banks can also help their customers participate in a variety of government programs, such as Small Business Administration-backed loans, for example, that help to provide access to capital, or programs that provide mortgage refinance assistance to homeowners. Q: What will it take to increase banks’ commercial lending volume, to spur more business investment? Is the problem one of inadequate capital on the banks’ part, overly restrictive requirements for borrowers or low demand for capital from business? A: Demand for commercial loans falls in every recession. Loan demand has certainly been slower over the past few years. Companies are not expanding inventory, investing in their infrastructure or hiring as rapidly as they had in the past. Strong banks are still very willing to extend credit to strong businesses. As businesses use up excess capacity and need to expand, loan growth will pick up. In fact, commercial and industrial loans are growing once again across the banking industry, rising 7.9 percent year-over-year as of September. At M&T, in our most recent earnings release we reported that net loans and leases “were $58.4 billion at September 30, 2011, compared with $50.8 billion a year earlier.” That’s an increase of 15 percent. Q: What do you think of Gov. O’Malley’s InvestMaryland program and its likelihood of success? What pitfalls must it avoid to be successful? A: The governor has created a plan that has the potential to create an estimated 2,000-plus jobs and act as a solid force to continue driving economic recovery in Maryland. The success of the plan relies on two main factors: 1) the amount of money flowing into the fund through the auction; and 2) the ability of the venture funds themselves to invest that money into companies that will grow, be successful and hire more workers. Capital is an important element to spur business growth. Venture capital as an industry is focused on funding innovative and growing companies across all industries. According to a 2011 global Insight study, venture-backed companies accounted for 12 million jobs and $3.1 trillion in revenue in the U.S. in 2011. Given this historical precedent, I think there is reason for optimism. Q: To what extent is Maryland “in competition” for business growth with Virginia, Pennsylvania, Delaware and Washington, D.C.? To that extent, how can the state compete more effectively? A: This region is extremely competitive, and Maryland is under pressure to make the state as attractive as possible for businesses to remain here and to relocate here. There are many factors that businesses consider, and Maryland has a very compelling case to make. Maryland has excellent school systems, transportation infrastructure, quality of life, hospitals and a highly educated work force. Where Maryland is sometimes challenged is in taxes and incentives, things that states like Delaware and Virginia are very aggressive in. That can sometimes be an impediment that causes Maryland to lose businesses to those states. Q: Some in Maryland’s business community say it is over-regulated by the state. Do you agree? What specific state regulations should be eased to foster economic growth? A: Economic growth is not going to be impacted by simply easing regulations. It’s a matter of creating and fostering a competitive business environment. We agree with the Greater Baltimore Committee’s recommendations on Maryland’s business climate: ŸMaryland must project to businesses that its government regulatory policies are reasonable, relevant, free of surprises or redundancy, and considerate of businesses’ sense of urgency. ŸMaryland’s tax policy must be perceived by business as being competitive and devoid of elements that unreasonably target specific businesses or business sectors. ŸPublic policies must reflect a government predisposition to nurture business growth and to avoid arbitrarily or disproportionately imposing additional overhead upon the business sector.