US regional banks' shares slip as deposit flight counters higher interest income

By Manya Saini

(Reuters) - A clutch of U.S. regional lenders on Thursday joined peers in reporting deposit outflows for the first quarter as customers spooked by a banking crisis moved funds to bigger institutions or sought higher yields in money market funds.

Shares in Fifth Third Bancorp, Comerica, Truist Financial Corp and KeyCorp fell as the deposit flight dampened a jump in the lenders' interest income from the U.S. Federal Reserve's aggressive monetary policy tightening through the past year.

Only Huntington Bancshares Inc managed to grow average total deposits by $472 million from the prior quarter.

Its shares outperformed the broader sector with a nearly 1% gain in morning trading, while the others fell between 1% and 6%.

Huntington outperforms with Q1 deposit gains, https://www.reuters.com/graphics/USA-BANKS/gdvzqbrrjpw/chart.png

Executives at Comerica expect a steep decline this year in deposits as the fallout from the turmoil lingers.

"Our estimated average year-over-year deposit decline of 12% to 14% assumes continued stabilization and reflects the impact from Fed monetary actions that began last year in addition to the first quarter industry events," Comerica finance head James Herzog said in a post earnings call.

Meanwhile, Fifth Third executives expected deposits to be stable or grow from the first-quarter average level throughout 2023.

KeyCorp, in contrast, sees deposits for the full year to be flat to down 2% and net interest income to decline between 1% and 3%.

Deposit outflows have been at the center of investor concerns after bank runs last month at two mid-sized lenders sparked worries of sector-wide instability.

In the aftermath, the KBW Regional Banking Index has tumbled 19.4% this year, through last close.

Wall Street lending titans Bank of America, Citigroup and Wells Fargo and Co also reported deposit declines between 1% and 3% in the quarter as banks remain sluggish in raising rates it pays depositors.

Clients are expected to extend the shift toward other assets seeking higher returns unless banks boost deposit rates, analysts have said.

Huntington cut its forecast for net interest income this year as a recession becomes more likely, its chief executive told Reuters on Thursday.

On Wednesday, Citizens Financial slashed its forecast for net interest income, expecting an increase in the rate it pays out for deposits.

(Reporting by Manya Saini in Bengaluru and Nupur Anand in New York; Additional reporting by Niket Nishant, Siddarth S and Jaiveer Singh Shekhawat; Editing by Sriraj Kalluvila)