Four days this week (July 18-July 21) will provide important information and insights into the U.S. regional bank industry. During that period, all eleven regional banks in the S&P 500 Stock Index will report a slew of key data and commentary: revenues and earnings, of course, but also deposit flows, loan demand, net interest margin, and changes in allowances for loan and leases. In addition, changes in management, operations, and strategies. Then there are the all-important outlooks – not only where managements see their banks headed, but also what the risks are over the next year or two.
All eleven banks’ stocks have risen significantly from their recent lows. Thus, investors and analysts are expecting the crisis-fears generated during the selloffs are now moderated. Because managements must remain silent for four weeks prior to reporting their earnings and other information, those lower-risk expectations now will be tested.
Reflecting the reduced risk views, analyst recommendations are positive. On the five-point scale (1=Strong buy, 2=Buy, 3=Hold, 4=Sell, 5=Strong sell), the average recommendations range from around 2 to 2.5).
The lower stock prices made dividend yields high. They now range from 4% to 8%. Therefore, managements need to discuss whether continuing those payouts is viable.
The bottom line: The regional bank collapse reflected a fundamental change, not a temporary problem
The Wall Street Journal reported today (July 17 in “Heard on the Street”) on a key issue facing all banks…
“Regional lenders due to report results this week will likely be hit harder by rising deposit costs.”
Therefore, this week’s regional bank reports are key, not only for evaluating the individual banks, but also judging the banking industry’s soundness.
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