US mid-sized bank shares slump after downbeat interest income forecasts

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Oct 20 (Reuters) – Shares of mid-sized U.S. banks fell on Friday after a string of earnings reports heightened investor concerns that the boost to lenders from the Federal Reserve’s interest rate hikes was tapering off. Regions Financial (RF.N) shares plummeted over 12% to $14.44 after missing profit estimates, when an industry crisis began following an outflow of deposits that engulfed three banks. The lender said it expects net interest income (NII) in the fourth quarter to decline about 5% from current levels. “We see the entire bank group as inexpensive but, on a relative basis, we would rather invest elsewhere,” Wells Fargo analyst Mike Mayo said about Regions Financial. The headwinds from higher rates could last longer than expected, Mayo added. Regions Financial reported profit of 49 cents per share for the third quarter, missing analysts’ average estimate of 58 cents, according to LSEG data. The lender also missed its estimates on net interest income, credit costs and expenses while share of bad loans increased at a faster pace than expected, R. Scott Siefers, an analyst at Piper Sandler said in a note. The U.S. regional banks have been grappling with tepid performance after the collapse of three lenders in spring this year which sparked deposit outflows leading to earnings being under pressure since then. Reuters Graphics UNDERWHELMING MARGIN TALK A busy earnings week for banks has highlighted that the Fed’s rate hikes forced several of them to pay higher interest on deposits to stem the migration of customers to alternatives such as money-market funds. That, together with an expected slowdown in loan demand as borrowing costs increase, dampened expectations of NII growth in the fourth quarter. “The higher for longer environment will continue to pressure net interest margins and overall profitability, as well as the risk of certain borrowers who are unable to repay,” said Terry McEvoy, banking analyst at Stephens. Huntington Bancshares’ (HBAN.O) stock dipped 3.88%, while Comerica (CMA.N) dropped 8.5%, dragging down the S&P 500 Banks index (.SPXBK) by over 2%. The KBW Regional Banking index (.KRX) also fell by over 3.50%. Lenders such as Fifth Third Bancorp (FITB.O) and Comerica have also forecast a drop in NII. Huntington Bancshares posted an 8% drop in third-quarter profit as interest income declined. While its margins and net interest income are expected to improve throughout 2024, its expenses are also expected to pick up which could weigh on its performance, analysts said. Read Next Marketscategory Canada’s Conservative leader urges rejection of RBC’s offer for HSBC Canada -media 12:59 AM UTC Marketscategory Falling stocks, climbing mortgage rates: how 5% Treasury yields could roil markets 9:59 AM UTC Sustainabilitycategory Banks call for clarity on Britain’s investment path to net-zero economy 6:38 AM UTC Regulatory Oversightcategory Inflation, commercial real estate among top financial stability concerns -Fed survey 8:37 PM UTC Reporting by Jaiveer Singh Shekhawat and Niket Nishant in Bengaluru and Nupur Anand in New York; Editing by Shilpi Majumdar and Marguerita Choy Our Standards: The Thomson Reuters Trust Principles. Acquire Licensing Rights, opens new tab Niket Nishant Thomson Reuters Niket Nishant reports on breaking news and the quarterly earnings of Wall Street’s largest banks, card companies, financial technology upstarts and asset managers. He also covers the biggest IPOs on U.S. exchanges, and late-stage venture capital funding alongside news and regulatory developments in the cryptocurrency industry. His writing appears on the finance, business, markets and future of money sections of the website. He did his post-graduation from the Indian Institute of Journalism and New Media (IIJNM) in Bengaluru.

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