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Tag: Regions Financial Corp

  • These regional banks are at greatest risk of being taken over by rivals, according to KBW

    These regional banks are at greatest risk of being taken over by rivals, according to KBW

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    A customer enters Comerica Inc. Bank headquarters in Dallas, Texas.

    Cooper Neill | Bloomberg | Getty Images

    A trio of regional banks face increasing pressure on returns and profitability that makes them potential targets for acquisition by a larger rival, according to KBW analysts.

    Banks with between $80 billion and $120 billion in assets are in a tough spot, says Christopher McGratty of KBW. That’s because this group has the lowest structural returns among banks with at least $10 billion in assets, putting them in the position of needing to grow larger to help pay for coming regulations — or struggling for years.

    Of eight banks in that zone, Comerica, Zions and First Horizon might ultimately be acquired by more profitable competitors, McGratty said in a Nov. 19 research note.

    Zions and First Horizon declined comment. Comerica didn’t immediately have a response to this article.

    While two others in the cohort, Western Alliance and Webster Financial, have “earned the right to remain independent” with above-peer returns, they could also consider selling themselves, the analyst said.

    The remaining lenders, including East West Bank, Popular Bank and New York Community Bank each have higher returns and could end up as acquirers rather than targets. KBW estimated banks’ long-term returns including the impact of coming regulations.

    “Our analysis leads us to these conclusions,” McGratty said in an interview last week. “Not every bank is as profitable as others and there are scale demands you have to keep in mind.”

    Banking regulators have proposed a sweeping set of changes after higher interest rates and deposit runs triggered the collapse of three midsized banks this year. The moves broadly take measures that applied to the biggest global banks down to the level of institutions with at least $100 billion in assets, increasing their compliance and funding costs.

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    Invesco KBW Regional Bank ETF

    While shares of regional banks have dropped 21% this year, per the KBW Regional Banking Index, they have climbed in recent weeks as concerns around inflation have abated. The sector is still weighed down by concerns over the impact of new rules and the risk of a recession on loan losses, particularly in commercial real estate.

    Given the new rules, banks will eventually cluster in three groups to optimize their profitability, according to the KBW analysis: above $120 billion in assets, $50 to $80 billion in assets, and $20 to $50 billion in assets. Banks smaller than $10 billion in assets have advantages tied to debit card revenue, meaning that smaller institutions should grow to at least $20 billion in assets to offset their loss.

    The problem for banks with $80 billion to $90 billion in assets like Zions and Comerica is that the market assumes they will soon face the burdens of being $100 billion-asset banks, compressing their valuations, McGratty said.

    On the other hand, larger banks with strong returns including Huntington, Fifth Third, M&T and Regions Financial are positioned to grow through acquiring smaller lenders, McGratty said.

    While others were more bullish, KBW analysts downgraded the U.S. banking industry in late 2022, months before the regional banking crisis. KBW is also known for helping determine the composition of indexes that track the banking industry.

    Banks are waiting for clarity on regulations and interest rates before they will pursue deals, but consolidation has been a consistent theme for the industry, McGratty said.

    “We’ve seen it throughout banking history; when there’s lines in the sand around certain sizes of assets, banks figure out the rules,” he said. “There’s still too many banks and they can be more successful if they build scale.”

    The American banking landscape is on the cusp of a seismic shift

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  • Stocks making the biggest moves after hours: SolarEdge, Knight-Swift Transportation and more

    Stocks making the biggest moves after hours: SolarEdge, Knight-Swift Transportation and more

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  • Regional banks face another hit as regulators force them to raise debt levels

    Regional banks face another hit as regulators force them to raise debt levels

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    Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corp. (FDIC), speaks during an Urban Institute panel discussion in Washington, D.C., on Friday, June 3, 2022.

    Ting Shen | Bloomberg | Getty Images

    U.S. regulators on Tuesday unveiled plans to force regional banks to issue debt and bolster their so-called living wills, steps meant to protect the public in the event of more failures.

    American banks with at least $100 billion in assets would be subject to the new requirements, which makes them hold a layer of long-term debt to absorb losses in the event of a government seizure, according to a joint notice from the Treasury Department, Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp.

    The steps are part of regulators’ response to the regional banking crisis that flared up in March, ultimately claiming three institutions and damaging the earnings power of many others. In July, the agencies released the first salvo of expected changes, a sweeping set of proposals meant to heighten capital requirements and standardize risk models for the industry.

    In their latest proposal, impacted lenders will have to maintain long-term debt levels equal to 3.5% of average total assets or 6% of risk-weighted assets, whichever is higher, according to a fact sheet released Tuesday by the FDIC. Banks will be discouraged from holding the debt of other lenders to reduce contagion risk, the regulator said.

    Higher funding costs

    The requirements will create “moderately higher funding costs” for regional banks, the agencies acknowledged. That could add to the industry’s earnings pressure after all three major ratings agencies have downgraded the credit ratings of some lenders this year.

    Still, the industry will have three years to conform to the new rule once enacted, and many banks already hold acceptable forms of debt, according to the regulators. They estimated that regional banks already have roughly 75% of the debt they will ultimately need to hold.

    The KBW Regional Banking Index, which has suffered deep losses this year, rose less than 1%.

    Indeed, industry observers had expected these latest changes: FDIC Chairman Martin Gruenberg telegraphed his intentions earlier this month in a speech at the Brookings Institution.

    Medium is the new big

    Broadly, the proposal takes measures that apply to the biggest institutions — known in the industry as global systemically important banks, or GSIBs — down to the level of banks with at least $100 billion in assets. The moves were widely expected after the sudden collapse of Silicon Valley Bank in March jolted customers, regulators and executives, alerting them to emerging risks in the banking system.

    That includes steps to raise levels of long-term debt held by banks, removing a loophole that allowed midsized banks to avoid the recognition of declines in bond holdings, and forcing banks to come up with more robust living wills, or resolution plans that would take effect in the event of a failure, Gruenberg said this month.

    Regulators would also look at updating their own guidance on monitoring risks including high levels of uninsured deposits, as well as changes to deposit insurance pricing to discourage risky behavior, Gruenberg said in the Aug. 14 speech. The three banks seized by authorities this year all had relatively large amounts of uninsured deposits, which were a key factor in their failures.

    What’s next for regionals?

    Analysts have focused on the debt requirements because that is the most impactful change for bank shareholders. The point of raising debt levels is so that if regulators need to seize a midsized bank, there is a layer of capital ready to absorb losses before uninsured depositors are threatened, according to Gruenberg.

    The move will force some lenders to either issue more corporate bonds or replace existing funding sources with more expensive forms of long-term debt, Morgan Stanley analysts led by Manan Gosalia wrote in a research note Monday.

    That will further squeeze margins for midsized banks, which are already under pressure because of rising funding costs. The group could see an annual hit to earnings of as much as 3.5%, according to Gosalia.

    There are five banks in particular that may need to raise a total of roughly $12 billion in fresh debt, according to the analysts: Regions, M&T Bank, Citizens Financial, Northern Trust and Fifth Third Bancorp. The banks didn’t immediately respond to requests for comment.

    Bank groups complain

    Having long-term debt on hand should calm depositors during times of distress and reduces costs to the FDIC’s own Deposit Insurance Fund, Gruenberg said this month. It also improves the chances that a weekend auction of a bank could be done without using extraordinary powers reserved for systemic risks, and gives regulators more options in that scenario, like replacing ownership or breaking up banks to sell them in pieces, he said.

    “While many regional banks have some outstanding long-term debt, the new proposal will likely require issuance of new debt,” Gruenberg said. “Since this debt is long-term, it will not be a source of liquidity pressure when problems become apparent. Unlike uninsured depositors, investors in this debt know that they will not be able to run when problems arise.”

    Investors in long-term bank debt will have “greater incentive” to monitor risk at lenders, and the publicly traded instruments will “serve as a signal” of the market’s view of risk in these banks, he said.

    Regulators are accepting comments on these proposals through the end of November. Trade groups raised howls of protest when regulators released part of their plans in July.

    Correction: FDIC Chairman Martin Gruenberg gave a speech in August at the Brookings Institution. An earlier version misstated the month.

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  • Regional bank reports so far show deposits are stabilizing. What’s next for the stocks

    Regional bank reports so far show deposits are stabilizing. What’s next for the stocks

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  • Sens. Booker, Warnock press big bank CEOs to pause overdraft fees after SVB failure

    Sens. Booker, Warnock press big bank CEOs to pause overdraft fees after SVB failure

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    Sen. Cory Booker (D-NJ) speaks during Attorney General nominee Merrick Garland’s confirmation hearing before the Senate Judiciary Committee, Washington, DC, February 22, 2021.

    Al Drago | Pool | Reuters

    WASHINGTON — Sens. Cory Booker and Raphael Warnock have urged the CEOs of 10 major banks to waive overdraft and nonsufficient fund fees that could cost some Americans more than $100 a day in the wake of the failures of Silicon Valley Bank and Signature Bank.

    In letters dated Tuesday, the New Jersey and Georgia Democrats asked banks to help customers whose payments were delayed or missing due to the collapse of SVB and Signature earlier this month. The letters went to the CEOs of Wells Fargo, U.S. Bank, Truist Financial Corporation, TD Bank, Regions Financial Corporation, PNC Bank, JP Morgan Chase, Huntington National Bank, Citizens Bank and Bank of America.

    “Disruptions across the banking industry this month rattled consumers and threw into jeopardy the paychecks of millions of American workers,” wrote Booker, who is a member of the Senate Committee on Small Business and Entrepreneurship, and Warnock.

    The fees, which can reach up to $111 a day for low account balances or up to $175 on low account fees, “compound the difficult financial situation customers find themselves in, particularly when their lack of funds is due to an unprecedented, unexpected delay,” the senators added.

    JPMorgan declined to comment. The other banks that received the letters did not immediately respond to requests for comment.

    The Federal Deposit Insurance Corporation closed SVB on March 10 after the bank announced a nearly $2 billion loss in asset sales. The agency said SVB’s official checks would continue to clear and assets would be accessible the following day.

    Regulators shuttered New York-based Signature Bank days later in an effort to stall a potential banking crisis. Many of its assets have since been sold to Flagstar Bank, a subsidiary of New York Community Bankcorp.

    Booker and Warnock said banking customers whose paydays fell between March 10 and March 13 were unable to receive or deposit checks from payroll providers banking with SVB and Signature Bank. They also noted that online merchant Etsy notified customers of payment delays because it used SVB payment processing.

    The senators also cited an unrelated, nationwide technical glitch on the 10th that caused missing payments and incorrect balances for Wells Fargo customers.

    “These delays will disproportionately harm the impacted customers who are part of the sixty-four percent of Americans living paycheck-to-paycheck, who are often ‘minutes to hours away from having the money necessary to cover’ expenses that lead to overdraft nonsufficient fund fees,” Booker and Warnock wrote.

    They praised steps taken by the Treasury and the FDIC to stem a possible economic catastrophe by ensuring access to depositor funds over the $250,000 FDIC-guarantee threshold and creating a new, one-year loan to financial institutions to safeguard deposits in times of stress.

    Treasury Secretary Janet Yellen on Tuesday said the Treasury is prepared to guarantee all deposits for financial institutions beyond SVB and Signature Bank if the crisis worsens.

    “In line with quick, decisive government response to assist the businesses and individuals who were helped immediately in order to contain the broader fallout of these bank failures, we urge you to act with similar urgency to backstop American families from unexpected and undeserved charges,” the senators wrote.

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  • First Republic and Western Alliance pace big rebound in regional-bank stocks after huge losses

    First Republic and Western Alliance pace big rebound in regional-bank stocks after huge losses

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    Shares of regional banks posted big gains on Tuesday as they regained their footing after huge losses in the previous session, but volatility continued in the sector following the demise of Silicon Valley Bank, Signature Bank and Silvergate Capital in the past week.

    While the rise in some cases is eye-popping, most stocks have yet to recover fully from losses in the past few days. Most stocks are trading well below their levels from a week ago, even with Tuesday’s gains.

    Among…

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  • Western Alliance and First Republic clobbered as regional bank jitters persist despite Fed backstops

    Western Alliance and First Republic clobbered as regional bank jitters persist despite Fed backstops

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    Trading in shares of First Republic Bank and Western Alliance Bancorp ended sharply lower in a tough day of trading for regional banks as fears over bank solvency persisted following the failures of Silicon Valley Bank, Signature Bank and Silvergate Capital.

    Stocks were periodically halted or paused for trading amid the bank stock bloodbath, which saw many suffering percentage declines well into the double digits. Typically, bank stocks are stable compared with sectors such as technology, with daily moves above 5% being relatively…

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  • Morgan Stanley analyst says these ‘undervalued’ bank stocks could rise 24%

    Morgan Stanley analyst says these ‘undervalued’ bank stocks could rise 24%

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