Signage is posted outside a Comerica Bank branch in Torrance, California, on March 13, 2023.
Patrick T. Fallon | AFP | Getty Images
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Sell-off of the regional banks
Regions Financial, a lender based in Birmingham, Alabama, reported a 6.5% decline in net interest income compared to the previous quarter. The bank also expects NII to decline further, seeing a 5% decline in the fourth quarter.
NII is the difference between the interest banks earn on loans and what they pay out on deposits. When interest rates rise, lenders are under pressure to pay more to retain depositors.
The Federal Reserve has raised its key interest rate 11 times since March 2022, by a total of 5.25 percentage points, and the central bank recently pledged to keep interest rates higher for longer to combat stubborn inflation. Higher interest rates could lead to further losses in banks’ bond portfolios and increase funding pressures as institutions are forced to pay higher interest rates on deposits.
Dallas-based Comerica issued a similar warning to Regions, saying NII is expected to fall 5% to 6% in the fourth quarter. The bank reported a $106 million year-over-year decline in NII to $601 million in the third quarter.
Also feeling the pain is Cincinnati-based Fifth Third Bancorp, which forecasts a similar decline in the coming quarter.
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