What happened
Shares of several super-regional bank stocks declined today after KeyCorp (KEY 0.62%) provided disappointing guidance at an investor conference this morning.
Shares of KeyCorp traded more than 5.5% lower as of 1:46 p.m. ET today. Shares of Comerica (CMA -0.15%) and Truist Financial (TFC 0.53%) had at one point today fallen by roughly 5% or more, but as of this writing were down more than 3% and nearly 2.7%, respectively.
So what
At a conference call this morning, KeyCorp CEO Chris Gorman said that net interest income (NII) is expected to come in much worse than expected in the second quarter of the year, which ends June 30.
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NII is the money banks make on loans and securities after funding those assets with liabilities such as deposits, and it is a major source of revenue for almost all banks. Banks are expected to see pressure on NII and their margins this year, mainly due to deposit costs rising as bank customers seek out more yield on their money.
Gorman said NII is now expected to be down 12% in Q2 from the sequential quarter. On KeyCorp's first-quarter earnings call, the bank had only guided for NII to be down 4% in Q2.
"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," KeyCorp's CFO Clark Khayat said at the conference.
However, Khayat did say that the bank is starting to see rising deposit costs and the shift to interest-bearing deposits level off in certain pockets of its customer base. Gorman also said that the bank's guidance for loan and deposit volume and expenses are tracking in line.
The guidance from KeyCorp seemed to spook investors of all super-regional bank stocks. Truist will present at the same conference today, while Comerica is slated to present tomorrow, so investors will certainly be paying attention to any changes to Q2 guidance.
Truist CEO Bill Rogers did say at an industry conference on May 31 that deposit costs were coming in a little higher than the bank had expected in Q2.
Now what
Because the banking crisis only occurred for a small part of the first quarter, a lot of its effects, such as higher funding costs, deposit declines, and margin pressure, are likely going to be more pronounced in the second quarter of the year.
I certainly wouldn't be surprised if other bank management teams miss on Q2 guidance, given the uncertainty they have been operating in.
Generally speaking, while I do expect near-term earnings pressure, I still think many super-regional bank stocks like Truist and Comerica present good long-term opportunities. While I think KeyCorp can navigate the near-term struggles, management has now missed on their own guidance by a pretty wide margin in the first quarter of the year and now in the second quarter as well.
It's obviously a very difficult operating environment, and KeyCorp likely won't be the only bank that will miss on its own guidance in Q2, but this does lead me to favor some other super-regional bank stocks right now.
