Some of the country's best-known mid-sized lenders reported significant profit declines in the fourth quarter, a reminder of just how difficult a year 2023 has been.
The problem is that things are not expected to get much better in 2024.
Shares of Discover Financial Services (DFS) fell 11% on Thursday after the company announced that its profit fell 62% year over year. KeyCorp (KEY) reported a 36% drop in profits, falling more than 4%. Trust (TFC) rose slightly after falling for much of the afternoon. The company's net loss was $5 billion, its worst quarterly performance ever.
Regional banks are generally in a more stable position than in the first half of last year, when the failures of Silicon Valley Bank, Signature Bank and First Republic sparked panic about the strength of many other midsize banks across the country.
The company's stock price continued to soar in late 2023 as investors became more confident that the Federal Reserve was prepared to start cutting ultra-high interest rates as early as March. The move would help many local banks, which have seen profits plummet as deposit prices soar.
But it's still unclear when a rate cut will occur, and stocks are now falling as policymakers put the brakes on market expectations for first-quarter easing.
Uncertainty around interest rates means local banks will continue to struggle with a key measure of profitability known as net interest income. Net interest income measures the difference between the income a bank earns on loans and the amount it pays out on deposits.
Many local banks saw revenue decline in the fourth quarter, and some expect similar declines in 2024, even if the Fed eventually begins to cut interest rates.
Trust Chief Financial Officer Mike McGuire told analysts on Thursday that the industry is “underperforming.”
The trust's quarterly loss of $5 billion was primarily due to a $6.1 billion non-cash goodwill impairment charge, reflecting the impact of rising interest rates on the industry as a whole, the bank said.
“A scenario where production cuts are not implemented or production cuts are significantly delayed would be a headwind for us,” Maguire added.
The Charlotte, North Carolina-based bank is much smaller than giant banks like JPMorgan Chase & Co. (JPM), but it remains one of the 10 largest financial institutions in the United States. It also received a one-time charge of $507 million in special assessments paid on federal deposits.Insurance company
Other banks paid similar valuations, which the FDIC is using to replenish funds to cover losses from the 2023 failures of Silicon Valley Bank and Signature Bank.
Cleveland-based regional bank KeyCorp said its fourth-quarter net interest income fell more than 24% from a year earlier.
Even though the Fed expects to cut interest rates two to five times starting in March, it still expects the tax-equivalent index to decline between 2% and 5% in 2024.
“We recognize that 2023 was a difficult year. Difficult but necessary decisions were made and actions were taken,” CEO Chris Gorman told analysts on Thursday. Ta. This year, the company is “managing its business in preparation for a short-term downturn.”
Buffalo-based regional bank M&T (MTB) expects its net interest income to decline 5% to 6.5% in 2024.
The company's chief financial officer, Darryl Bible, told analysts that lower interest rates would help the company's commercial lending and investment banking business.
“I get excited when the Fed cuts interest rates just a little bit,” Bible said.
David Hollerith is a senior reporter at Yahoo Finance, covering banking, cryptocurrencies, and other financial areas.
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