Investor fears about worsening credit conditions eased Friday as a new round of regional bank earnings provided some relief following a Thursday rout that spooked Wall Street.
A key index tracking US regional bank stocks, the KBW Nasdaq Regional Banking (^KRX), rose 1.7% Friday after falling sharply on Thursday by 6% — its worst single-day pullback since the height of the tariff turmoil last April.
Investors reacted calmly to a string of new earnings and executive commentary Friday from regional banks across the US, including Truist Financial (TFC), Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), Ally Financial (ALLY).
Those stocks all rose as loan loss provisions proved to be lower than analysts expected, with the exception of Huntington, according to analyst estimates compiled by Bloomberg.
“Overall credit quality is strong,” Truist CEO Bill Rogers said on a conference call. “We have seen in the market some, I would say, today sort of idiosyncratic and uncorrelated events,” he noted, adding that his bank is being “hypervigilant.”
Wall Street’s credit worries intensified on Thursday after two regional banks, Western Alliance Bancorporation (WAL) and Zions Bancorporation (ZION), each disclosed some bad loans linked to fraud allegations, sending the stocks of both banks down 10% or more on the day.
But both of those stocks recovered on Friday, as did the stock of investment bank Jefferies Financial (JEF), a big Wall Street player exposed to the bankruptcy of an auto parts supplier.
“I don’t sense any kind of systemic problem in the banking system among the regional banks, I mean, the fundamental business appears to be good,” Moody’s Analytics chief economist Mark Zandi said Friday on Yahoo Finance Live.
“The reality is that even though these exposures may be ‘well-contained’ and have a ‘limited financial impact,’ this is an industry where investors — especially those that are new to this sector — tend to ‘sell first and ask questions later,’ especially when it comes to elevated credit concerns,” Anthony Elian, an equity analyst covering mid- and small-cap banks for JPMorgan Research, wrote Thursday.
That scrutiny traces back to concerns awakened by two recent and sizable bankruptcies in September: subprime auto lender Tricolor and larger auto parts supplier First Brands.
Fifth Third, which was one of the earliest US lenders to disclose exposure to the Tricolor bankruptcy, reported a $200 million increase in its net charge-offs on Friday compared to the previous quarter.
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A Fifth Third Bank branch in Boca Raton, Fla. (Reuters/Joe Skipper/File Photo) ·REUTERS / Reuters
That was the same amount of exposure the Cincinnati-based regional bank said it had for an outstanding asset-backed loan it had extended to Tricolor.
Another event that may have spooked some investors this week came during JPMorgan Chase (JPM) earnings day on Tuesday. Its CEO Jamie Dimon issued both a mea culpa and a stark warning when discussing the $170 million loss his bank took from the downfall of Tricolor Holdings, saying it was “not our finest moment.”
“My antenna goes up when things like that happen,” Dimon told analysts Tuesday morning. “I shouldn’t say this, but when you see one cockroach, there’s probably more. Everyone should be forewarned on this one,” he added.
Truist CFO Mike Maguire downplayed any larger concerns when speaking to analysts on Friday.
“It would be early to call it an inflection point” on credit, Maguire said. “Our performance to date isn’t demonstrating that across our portfolios, and we’re not seeing that on a broad base,” he added.
Truist Financial reported $436 million in credit provisions and $385 million in net charge-offs. Both credit figures fell when compared to the third quarter of last year and the previous quarter.
Maguire said Truist does have exposure to bankrupt auto parts supplier First Brands, but he added that this exposure was reflected in the company’s quarterly provisions for credit losses along with the bank’s full-year guidance on souring loans.
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Truist Financial CEO Bill Rogers. (Reuters/Brendan McDermid) ·REUTERS / Reuters
“The exposure is less than $200 million for us, but it would be early for us to get into the details,” Maguire added.
Another regional lender, Webster Financial (WBS), reported a provision for credit losses of $44 million versus $46.5 million in the prior quarter and $54 million a year ago. Its net charge-offs were $38.4 million, compared to $36.4 million in the prior quarter and $35.4 million a year ago.
“We haven’t been exposed to the headline credits that you’ve seen,” Webster Bank CEO John Ciulla told analysts.
“While we remain vigilant, tariffs and labor market uncertainty are not significantly impacting the credit performance of our loan portfolio, and we are not seeing pockets of correlated credit risk emerging,” Ciulla added.
More regional bank CEOs offered similar notes of optimism.
“There’ll be some episodic moments and some one-offs, but I think the industry is in good shape,” Huntington CEO Stephen Steinour said.
“And I’m obviously aware of Jamie’s position, comments this week, but I don’t see it broadly affecting the industry — and many of those who reported are suggesting the consumer is in relatively good shape,” he added. “We certainly are not seeing forward indicators in terms of delinquency or other measures.”
Of the country’s six largest Wall Street banks that reported third quarter earnings earlier this week, JPMorgan stood out as the only one that increased its amount of credit provisions during the quarter. The country’s largest bank added $3.4 billion, a 19% increase compared to last year.
David Hollerith covers the financial sector, ranging from the country’s biggest banks to regional lenders, private equity firms, and the cryptocurrency space.
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