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KeyCorp (KEY) Slips 4.3% on Disappointing Q2 NII Guidance
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Shares of KeyCorp (KEY - Free Report) tumbled as much as 4.3% yesterday, taking other regional bank stocks like Comerica (CMA - Free Report) and Truist Financial (TFC - Free Report) with it. Both CMA and TFC closed more than 2% lower.
Why have investors again turned bearish on these regional banks? Yesterday, at the Morgan Stanley US Financials, Payments & CRE Conference, KeyCorp presented weaker-than-expected net interest income (NII) second-quarter 2023 guidance.
CEO Chris Gorman noted that NII will come much lower than previously expected. Now, NII is anticipated to slide 12% sequentially in the current quarter, which is substantially below the 4-5% fall guided during the first-quarter earnings conference call.
This spooked investors. The KBW Nasdaq Regional Banking Index decreased almost 1% yesterday.
While providing the reason behind this dismal view, KeyCorp’s chief financial officer Clark Khayat said, “Clients deposits are staying in place, they are just more expensive, and they are going to continue to be expensive as long as rates sort of sit where they are.”
Further, Gorman noted that the previously provided guidance related to loans, deposits and expenses remains unchanged.
It must be noted that both CMA and TFC management, on the earnings conference call in mid-April, stated that NII is likely to decline in the second quarter on a sequential basis. Per Comerica management, NII is estimated to decline in the range of 11-13% owing to higher funding costs.
Likewise, Truist management projected a modest decline in NII on higher deposit and funding costs. Also, at the Bernstein Strategic Decisions Conference in May end, the company CEO Bill Rogers commented that deposit costs are turning out to be a bit higher than previously expected.
As the Federal Reserve is expected to keep the interest rates high (currently the Fed Fund rates are at a 15-year high of 5-5.25%) in the near term, all asset-sensitive banks are expected to witness a decrease in NII as deposit costs rise. A tough operating backdrop, including waning loan demand, will aggravate the situation further.
So far this year, shares of KeyCorp have plunged 41.3% compared with the industry’s decline of 5.4%.
Image: Bigstock
KeyCorp (KEY) Slips 4.3% on Disappointing Q2 NII Guidance
Shares of KeyCorp (KEY - Free Report) tumbled as much as 4.3% yesterday, taking other regional bank stocks like Comerica (CMA - Free Report) and Truist Financial (TFC - Free Report) with it. Both CMA and TFC closed more than 2% lower.
Why have investors again turned bearish on these regional banks? Yesterday, at the Morgan Stanley US Financials, Payments & CRE Conference, KeyCorp presented weaker-than-expected net interest income (NII) second-quarter 2023 guidance.
CEO Chris Gorman noted that NII will come much lower than previously expected. Now, NII is anticipated to slide 12% sequentially in the current quarter, which is substantially below the 4-5% fall guided during the first-quarter earnings conference call.
This spooked investors. The KBW Nasdaq Regional Banking Index decreased almost 1% yesterday.
While providing the reason behind this dismal view, KeyCorp’s chief financial officer Clark Khayat said, “Clients deposits are staying in place, they are just more expensive, and they are going to continue to be expensive as long as rates sort of sit where they are.”
Further, Gorman noted that the previously provided guidance related to loans, deposits and expenses remains unchanged.
It must be noted that both CMA and TFC management, on the earnings conference call in mid-April, stated that NII is likely to decline in the second quarter on a sequential basis. Per Comerica management, NII is estimated to decline in the range of 11-13% owing to higher funding costs.
Likewise, Truist management projected a modest decline in NII on higher deposit and funding costs. Also, at the Bernstein Strategic Decisions Conference in May end, the company CEO Bill Rogers commented that deposit costs are turning out to be a bit higher than previously expected.
As the Federal Reserve is expected to keep the interest rates high (currently the Fed Fund rates are at a 15-year high of 5-5.25%) in the near term, all asset-sensitive banks are expected to witness a decrease in NII as deposit costs rise. A tough operating backdrop, including waning loan demand, will aggravate the situation further.
So far this year, shares of KeyCorp have plunged 41.3% compared with the industry’s decline of 5.4%.
Image Source: Zacks Investment Research
At present, KEY carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.