Regional bank woes may persist after mixed Q4 results
Regional banks wrapped up a mixed quarter of earnings with diverging Friday reports. Fifth Third Bancorp (FITB) net interest income came in below Wall Street expectations while growing average deposits to $169.5 billion. However, KeyCorp (KEY) and Discover Financial (DFS) saw profits decline, with Discover down 62% year-over-year and KeyCorp down by 36%.
Almost a year after 2023's regional bank crisis, Yahoo Finance Live examines whether regional bank uncertainty may continue into 2024.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Angel Smith
Video Transcript
BRAD SMITH: More regional bank results are out this morning, showing problems may continue into 2024. This earnings season has been a mixed bag for midsized lenders, with several including Discover and KeyCorp taking significant profit hits in the quarter. You're taking a look at some of the activity and extended hours activity that we're seeing for Keycorp and Discover, even though Discover took a hit yesterday. So just a bit of a reprieve off of that decline that we had seen come forward on the back of some of their earnings results.
SEANA SMITH: Yeah, exactly. And Brad, when we take a look at the results that were out this morning, if we can pull up Fifth Third here because that is on the move following the results that we got out here. Net interest income coming in at $1.42 billion. That was slightly below what the Street's expectations were. Average deposits of $169.5 billion.
So again, pointing to an improvement when you compare it to prior quarters. But when you do it on a year-over-year basis, pretty consistent with the theme, Brad, that you were just talking about, this drop that we've seen on a year-over-year basis. So yes, I think it's safe to say that the regional banks are on solid footing. They are starting to regain some of their momentum.
But it is too early to say that they are out of the woods just yet when you take into account some of the other themes that we've seen a play out from some of these regionals going back to profits specifically. And we were just showing Discover Financial there taking a massive hit yesterday, one of the worst performers in the S&P. And that move to the downside coming after its earnings fell 62% from a year ago. Similar story over at Keycorp, with their profit falling 36%.
So this also goes back to the conversation that we were just having with Michael Gapen in terms of Fed cuts exactly-- rate cuts, excuse me-- from the Fed, what exactly the timing looks like for that. Because we know that is pivotal and critical here in terms of the performance that we could see. Obviously, if the Fed does cut rates here, that would be a bullish sign for some of these regionals.
BRAD SMITH: I think another bullish sign and a key point in this which really was one of the core elements that we had seen in the regional banking crisis especially last year was a hit on sentiment and pressure on deposits. Now, what they are seeing is an alleviation on pressure of deposit costs. So that beginning to rebound. Expenses remaining controlled. They're saying and credit costs are as expected at this point in time, at least for Citizens' camp.
But that is something that has continued to be watched by investors. As of right now, it's just what the deposit profile looks like among customers because there's a direct pass-through to what the sentiment and comfort with continuing to put your deposits in regional banks, especially when we don't know, as you were saying, if they're out of the woods yet if we are done with seeing consolidation for some of the key regional banks at this point too.
SEANA SMITH: Yeah, certainly. So some names to keep on your radar here as we head into the rest of the earnings season.
