Banks were among the poorest-performing sectors on Wall Street Thursday, after earnings from midsized lenders pointed to a weakening profit outlook in the aftermath of a recent industry crisis.
Shares of Comerica, KeyCorp and Zions Bancorporation were down between three and six percent shortly after midday, following first quarter results that revealed a drag from the higher interest payouts needed to retain deposits.
These banks were among US regional lenders punished severely in the wake of Silicon Valley Bank and Signature Bank’s failures last month, which sparked worry of further deposit runs.
The reports were not all bad, with the three banks reporting profitable quarters. Further, despite an uncertain economic backdrop, the banks did not suffer a huge uptick in loan delinquencies.
Still, the stock market’s thumbs- down response to the results stood in contrast to relief following earlier reports from JPMorgan Chase, Citigroup and others that have seen stable or increasing deposits from consumers who believe that they are a safer bet right now.
“The large banks have pricing power. They can decide what they want to do with deposits,” said Alexander Yokum, analyst at CFRA Research.
In contrast, the midsized banks have “less deposit power and their margins are going to get squeezed,” Yokum added.
Utah-based Zions reported quarterly profits of $198 million, essentially level with the year-ago period.
It said in a press release that its “fundamentally solid” results were “overshadowed” by industry turmoil that raised questions about liquidity and capital strength.
The Salt Lake City lender noted that its deposits were higher at the end of the first quarter compared with the end of 2019, before the coronavirus pandemic.
But investors punished the stock in light of a 16 percent drop in deposits from a year ago, to $69.2 billion. There was also an increase in the interest rate for deposits that has pinched its profit outlook.
Cleveland-based KeyCorp and Dallas-based Comerica also experienced declining deposits, and lower profits on loans due to higher interest payouts on deposits.
First Republic Bank, which had been seen as perhaps the most vulnerable of the midsized banks, will report its results on Monday.
