Wrapup 2: US regional banks capitalize on rising deal fees to counter high deposit costs

Huntington Bancshares

17/10/2024 22:04

(Repeats story with no changes)

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      Investment banking drives profit beat
    

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      Deposit costs weigh on net interest income
    

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      Loan loss provisions rise
    

  
    By Niket  Nishant and Manya Saini
       Oct 17 (Reuters) - U.S. regional banks' profits outdid
Wall Street expectations in the third quarter as their
investment banking fees surged from a revival in dealmaking and
helped offset higher deposit costs. 
    Underwriting and M&A activity picked up pace, taking
advantage of a stock market rally and leaning on a combination
of economic resilience and hopes of more cuts in interest rates
this year by the Federal Reserve.
    "We are at a spot where all the probabilities favor
increased dealmaking," said David Russell, global head of market
strategy at TradeStation. 
    "(As) rates work their way lower in the next six to twelve
months, there's a strong possibility that we're going to see
more dealmaking." 
    The results underlined the growing relevance of investment
banking to regional players. 
    While such services have been largely a domain of Wall
Street titans such as JPMorgan Chase  JPM.N , Goldman Sachs
 GS.N  and Morgan Stanley  MS.N , regional banks have carved a
niche among middle-market firms.
    "Better credit spreads and lower rates are helping
fixed-income issuance and strong equity valuations should aid
initial public offerings," said Stephen Biggar, a financial
services analyst at Argus Research, adding that improving CEO
confidence is also helping mergers and acquisitions.  
    Gains in investment banking helped the regional lenders
soften the blow from higher deposit costs stemming from paying
more interest to prevent customers from shifting to alternatives
like money market funds.
    Such pressures may ease as the Fed cuts rates further,
Biggar said.
    Huntington Bancshares  HBAN.O , Truist Financial  TFC.N ,
KeyCorp  KEY.N  and M&T Bank  MTB.N  reported
better-than-expected third-quarter profit on Thursday.
    "This momentum could continue past the election and into
year end," said Michael Ashley Schulman, chief investment
officer at Running Point Capital. 
    "An uptick in M&As along with any sustained reopening of the
IPO market should further fees and prop earnings."
     
       
    NORMALIZATION, NOT DETERIORATION
    Banks are allocating larger reserves for potential loan
defaults as consumers exhaust their savings built up during the
pandemic, but executives say the increase is not a cause for
alarm.
    "The increases in provisions for loan losses the industry is
seeing are largely driven by normalization rather than
widespread credit deterioration," said John Buran, CEO of
Flushing Financial  FFIC.O .
    Still, regional banks may need to prudently manage their
loan books, especially as they are heavily exposed to the
troubled commercial real estate (CRE) sector.
    "There is generally a higher amount of concentration to some
more challenged CRE (among smaller banks) and the fundamental
improvement will be dependent on a better environment for
managing these loans," said Macrae Sykes, portfolio manager at
Gabelli Funds.
     

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
US banks' investment banking and  capital markets businesses
shine    https://reut.rs/4dNVq0F
How the banking sector stacks up against broader markets in 2024
   https://reut.rs/3BPpX0Z
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 (Reporting by Niket Nishant and Manya Saini in Bengaluru;
Additional reporting by Pritam Biswas and Arasu Kannagi Basil;
Editing by Arun Koyyur and Alan Barona)
 ((mailto:Niket.Nishant@thomsonreuters.com))