new york: Several U.S. banks on Thursday (Jan. 18) reported sharp declines in fourth-quarter profits, hit by lower interest income and fees from replenishing deposit insurance funds.
Higher deposit payments to discourage customers from pursuing higher-yielding alternatives have led to an industry-wide decline in banks’ net interest margins, which until recently benefited from Federal Reserve rate hikes. brought about a reduction.
Some banks have warned that margins are likely to tighten further this year as the Federal Reserve could cut interest rates this year.
Meanwhile, many U.S. banks also pay fees to the Federal Deposit Insurance Corporation to replenish insurance funds that protect customer deposits in the event of a bank failure.
On Thursday, another top regulator announced plans for new short-term liquidity rules to help lenders respond to runs like the one that brought down three banks last year.
KeyCorp saw its quarterly profit plunge by nearly 92% and expects its net interest income (NII) to decline 2% to 5% in 2024. Total loans at the end of the quarter were nearly $114 billion, down 3.2% year over year. .
KeyCorp CEO Chris Gorman told Reuters in an interview that borrower appetite is “slowing down.” “There’s not a lot of demand for loans and there’s not a lot of transactions,” he said.
Raymond James analyst David Long said KeyCorp’s earnings per share could come under pressure, putting pressure on KeyCorp’s stock price.
Shares fell 5.5% to $13.10.
Investors will be closely monitoring trends in deposit costs in this quarter’s bank earnings reports. Reuters reported earlier this month that analysts are concerned that the 2024 earnings per share of 11 regional U.S. banks will decline from a year ago, mainly due to higher deposit costs.
“The results were not well received. The overall theme is continued pressure on net interest margins due to deteriorating credit conditions, rising deposit costs and low loan growth. That’s why some are under pressure,” said MacRae Sykes, portfolio manager at Gabelli Funds.
Trust fell into the red due to one-time costs of more than US$6 billion and weak NII. M&T Bank’s profits plummeted 37% due to higher deposit costs and special valuation fees, while asset manager Northern Trust’s profits fell 27%.
Digital banking and payment services company Discover Financial on Wednesday reported a 62% drop in profit due to higher provisions on loans that could come under pressure.
The S&P 500 Financial Sector Index fell 0.3%.
But Ryan Nash, a banking analyst at Goldman Sachs, said regional banks are well-positioned heading into 2024.
“It is clear that we are nearing the bottom of net interest income, which should happen by the middle of this year.” – Reuters
