10/23/2023 – 16:56
Regional banks in the United States have been disbursing more and more to depositors so that they stay with them. But for many, this is still not enough. After a difficult third quarter, banks launched plans last week to try to get back to health. Profits fell by double digits from the previous year at several of them, including 44% at KeyCorp, 32% at Citizens Financial and 28% at Truist Financial.
KeyCorp said it would become a “smaller, simpler company.” PNC Financial disclosed that it would lay off thousands of employees. Truist, which sold its student loan portfolio this summer, said it would reduce the size of other books with lower returns. Citizens recently said it would exit the auto loan business and continue scaling back its mortgage business.
Investors are getting nervous. Citizens shares fell nearly 6% on Wednesday following the earnings release, and US Bancorp shares fell more than 4%. Shares of Zions Bancorp sank nearly 10% on Thursday. The regions’ financial sector fell more than 12% on Friday.
Some of the smaller banks are already merging. There were 34 banking deals announced in the third quarter, according to S&P Global Market Intelligence, with a collective value of nearly $3 billion. The value of banking deals announced in the first and second quarters combined was about $630 million.
Banks have paid little on deposits for a long time, including in recent years when customers had tons of extra cash due to the pandemic. Now they have to compete with Treasury bonds and other investments that can yield 5%, or find other ways to finance themselves.
The average rate that many large regional banks paid on deposits rose to around 2% or more in the third quarter, from almost zero a year earlier. Some have had to turn to even more expensive alternatives, such as deposits brokered through third parties or loans from the Fed or the Federal Home Loan Bank system. Interest expense increased about 300% year-over-year at US Bank, PNC, Truist and KeyCorp.
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