M&T Bank forecasts strong 2024 interest income as rate cut bets ease

(Reuters) -M&T Bank forecast better-than-expected annual net interest income (NII) on Monday, betting on fewer rate cuts from the Federal Reserve than previously anticipated, sending its shares up more than 6%.

Rate cut hopes have diminished as hotter-than-expected inflation data is likely to nudge the Fed in keeping interest rates higher for longer.

The bank revised its annual NII - the difference between what a bank earns on loans and pays on deposits - to be more than $6.80 billion, up from $6.70 billion and $6.80 billion earlier, and above analysts' average expectation of $6.77 billion, according to LSEG data.

M&T's revised outlook reflects two rate cuts this year, while the previous one had considered three to six rate cuts.

Earlier in the day, Buffalo, New York-based M&T Bank reported an 8% drop in its first-quarter NII to $1.68 billion from a year earlier.

M&T, which has a substantial exposure to commercial real estate (CRE) loans compared to its regional banking peers, set aside $200 million as provisions for credit losses, up from $120 million a year earlier.

Changing patterns of remote work have affected demand for commercial properties, while reduced property prices and elevated interest rates have raised the prospect of loan defaults.

The lender, however, has been working on shrinking its CRE portfolio.

"We are off to a solid start in 2024 as we were able to grow certain sectors of our commercial and consumer loan portfolios, while continuing to shrink our commercial real estate exposure," Chief Financial Officer Daryl Bible said.

Net income available to common shareholders fell to $505 million, or $3.02 per share, for the three months ended March 31, from $676 million, or $4.01 per share, a year earlier.

The lender also said it plans to evaluate share repurchases, currently on hold, after second-quarter results.

(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Shinjini Ganguli)