Net Interest Margin To Hurt Regional Bank Earnings To 2013-2014

The low-rate environment is going to continue taking a toll on bank earnings.  Credit Suisse has a report this Thursday showing some ongoing caution in the regional banking sector.  The firm is maintaining an Outperform rating on six of the fifteen U.S. regional banks covered but the overall low-rate environment is expected to keep taking a toll on bank earnings.  The firm expects negative 2013 and 2014 EPS revisions driven by negative net interest margin outlook and guidance.  The good side of the equation is that the firm sees strong loan growth and continued credit quality improvement.  Following the drop in the 10-year, Credit Suisse reduced its 2014 earnings forecasts by 9% this month based on a long-term net interest margin outlook.

Some of these regional banks were screened for our Safest Banks in America for Depositors and many were close enough that they almost made the list. Two banks did make the list.

The “Neutral ratings with not much commentary were in BB&T Corp. (NYSE: BBT), Bank of Hawaii (NYSE: BOH), EverBank Financial Corporation (NASDAQ: EVER), Synovus Financial (NYSE: SNV), and TCF Financial (NYSE: TCB).

There were two more “Neutral” ratings with more expanded notes.  Fulton Financial Corp. (NASDAQ: FULT) actually saw its price target raised by Credit Suisse to $10.50 from $10.00 and saw its estimates raised.  Valley National Bancorp (NYSE: VLY) saw its target cut to $11 from $12 and Credit Suisse is under the street on earnings estimates.

KeyCorp (NYSE: KEY) and M&T Bank Corporation (NYSE: MTB) were both on our list of the 7 safest banks but Credit Suisse only has a Neutral rating on each. KeyCorp has a $7.00 price target, under the current price; M&T’s target at Credit Suisse is $91.00. KeyCorp is also expected to do much lower than the street consensus in earnings if Credit Suisse is correct.  Regardless, neither bank is being removed from our safest banks list.

The “Outperform” ratings are in shares of First Horizon National Corp. (NYSE: FHN), Fifth Third Bancorp (NASDAQ: FITB), Huntington Bancshares Incorporated (NASDAQ: HBAN), Regions Financial Corporation (NYSE: RF), SunTrust Banks Inc. (NYSE: STI) and Zions Bancorporation (NASDAQ: ZION).

Credit Suisse did key in on one Canadian bank and that was on “Outperform” rated Bank of Montreal (NYSE: BMO) with a $65 target on that one.  The firm covered its U.S. Investor Day and said that management seemed quite confident about its growth prospects, including guiding to positive U.S. loan growth in the next few quarters. We believe investors left the event with a better sense of BMO’s U.S. expansion strategy.

After the reports on wider losses at J.P. Morgan Chase & Co. (NYSE: JPM) and possibly from this call we have the SPDR S&P Regional Banking ETF (NYSEMKT: KRE) down $0.19 at $26.46 this morning.  Three of these banks mentioned in the Credit Suisse call are in the top ten holdings in that ETF.

Read Also: The 7 Safest Banks in America

JON C. OGG