Smaller banks recover in US
US REGIONAL banks, including SunTrust Banks and PNC Financial Services Group, reported improved quarterly results and said credit losses and funding costs are dropping, triggering hopes that banks are stabilising after years of pain.
Shares of SunTrust, PNC, KeyCorp, Fifth Third Bancorp and Huntington Bancshares rose strongly after the banks reported quarterly results.
BB&T shares were lower after the bank came in with higher profit but fell short of expectations.
Regional banks are setting aside less money to cover bad loans, and some are seeing loan losses ebb. Meanwhile, their funding costs are dropping as depositors grow willing to accept lower rates on their money.
“Margins will remain pressured, but as sure as there is rain in October, we will see an improving environment for lending too, sometime in late 2010 or 2011,” said Gary Townsend, head of Hill-Townsend Capital.
Fifth Third reported its lowest level of loan losses since the second quarter of 2008; losses fell to $434m (£284m) from $626m year-on-year.
Banks still face real headwinds, however, as credit costs remain high and loan demand is broadly weak. Even if costs are declining somewhat, it is not clear where future revenue growth will come from.
“We’re in a very slow-growth economy, and people are not borrowing money to expand or grow either individually or corporately,” PNC chief executive James Rohr said.
Pittsburgh-based PNC’s net interest margin, a measure of the profit it wrings out of money it borrows from depositors, increased to 4.35 per cent from 4.24 per cent in the first quarter.