US bank failures could surge by almost 50, Nomura analyst says

Republic First Bancorp

14/05/2024 18:17

By Nupur Anand
       NEW YORK, May 14 (Reuters) - 
    Almost 50 U.S. lenders could fail in the coming years under
pressure from higher interest rates and operational problems,
Nomura analyst Greg Hertrich told reporters at the company's New
York office on Tuesday.
    The collapses of three U.S. banks last year -- Silicon
Valley, Signature and First Republic -- sparked worries about
the financial health of regional lenders.
    Profits at smaller institutions could be squeezed if U.S.
interest rates decline this year because the banks will need to
pay higher rates to customers to keep their money parked in
accounts.
    "Those deposits are expensive and there is a concern about
whether or not that funding will remain at a smaller institution
once rates start coming down," said Hertrich, head of U.S.
depository strategies at Nomura. 
    Declining rates could trigger outflows that lead to bank
failures, he said, without specifying a time frame.
        Also, geographic concentrations could leave lenders more
exposed to local economic problems, while operational concerns
include taking greater risks or letting expenses rise too much,
Hertrich said.
    Last month, regulators seized Philadelphia-based Republic
First  FRBK.PK  and agreed to sell it to Fulton Bank, a unit of
Fulton Financial Corp  FULT.O . Republic First had been under
pressure from higher costs and sluggish earnings.
   Nomura's projection is broadly in line with the Federal
Deposit Insurance Corp's list of "problem banks." There were 52
on the list at the end of December, the highest since 55 lenders
were on the FDIC list in the first quarter of 2021, according to
a report by S&P.
    Hertrich said he expects more industry consolidation. The
U.S. currently has more than 4,500 banks, government data
showed. 
    "We don't think that is the right number of banks for the
market, we expect it to be more around 2,500 over the course of
a decade," he said. 
        Going forward, deals are more likely to happen via
market transactions than through FDIC-led processes, he added.
  

 (Reporting by Nupur Anand in New York; editing by Lananh
Nguyen)
 ((Nupur.Anand@thomsonreuters.com; +1 646 240 2975;))