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Is the regional banking crisis that fundamentally shook the sector earlier this year over? That’s the question as regional bank earnings roll out.
Honestly, it’s a mixed bag so far. Some of them look solid, though it’s still likely to be a bumpy ride ahead.
M&T Bank Corporation and Citizens Financial Group both topped estimates by charging higher interest rates, like many big banks, according to Reuters. First Horizon Corporation missed on revenue, Yahoo Finance reported, but its second quarter profit t grew from last year. US Bancorp beat revenue estimates, but its slim net interest margin dragged the stock down when it posted earnings. And PNC Financial posted mixed results, with an earnings beat and a revenue miss.
“For the regionals, the thought process was they were going to be pretty weak and they haven't been so far,” Dennis Dick, market structure analyst at Triple D Trading, told Reuters, adding that concerns about withdrawals have been “better than expectations.”
But many of the underlying problems that fueled the initial regional banking crisis are still in play, experts stress. Think about what happened at Silicon Valley Bank: Rising interest rates caused its assets to lose value, particularly weakening low-interest loans and bonds, as Northwestern finance professor Gregor Matvos has pointed out. Now, both big and mid-sized lenders have been under pressure to pay higher rates for deposits.
All those factors are still issues—and new problems will further complicate the sector. Losses from the troubled commercial real estate market are set to put more pressure on regionals. Commercial real estate loans comprise nearly 30% of assets at smaller banks, according to a recent JPMorgan Private Bank report. That’s around 4.4 times more exposure to commercial real estate loans than larger banks, the report’s authors point out.
In particular, higher interest rates make net interest income, which measures the difference between what banks pay on deposits and what they earn on loans, an especially important metric right now. “The big bank earnings weren’t entirely comforting for the midcap banks,” Wedbush securities managing director David Chiaverini told Yahoo Finance. “But the silver lining is that JPMorgan and Wells [Fargo] both did increase their Net Interest Income guidance for the year.”