U.S. banks warn of interest income weakness after upbeat quarter

By Niket Nishant and Jaiveer Shekhawat

(Reuters) -Comerica and Huntington Bancshares (NASDAQ:) on Friday sharply cut their interest income growth forecasts for 2023, the latest U.S. banks to sound the alarm over faltering loan demand and spike in deposit costs.

The Federal Reserve’s fastest monetary tightening cycle since the 1980s helped lift lenders’ net interest income in the second quarter but the high rates are forcing some customers to rethink on taking loans and buying big-ticket items.

NII – the difference between what banks make on loans and pay out on deposits – rose for nearly all banks reporting earnings for the April-June quarter, with Comerica (NYSE:) and Huntington also topping profit estimates.

The high interest rate environment is also forcing lenders to boost deposit rates to prevent clients’ money from fleeing to high-yielding alternatives like money market funds, analysts have said.

Mid-sized lender Regions Financial (NYSE:), which also reported results on Friday, said its deposit costs had risen in the second quarter.

Comerica slashed its 2023 NII growth forecast to a range of 1% to 2% from 6% to 7% estimated earlier, and its shares fell 3.8%.

Huntington expects its NII to increase between 3% and 5% this year, compared to its prior expectation of a 6% to 9% growth. Its shares slipped 1.3% in late-morning trade

Regions Financial kept its 2023 NII forecast unchanged but its stock declined 3.4%. “We still think there’s a fair amount of caution in banks and there probably should be,” said Christopher Marinac, director of research at wealth management firm Janney Montgomery Scott.

The industry, which is recovering from the aftershocks of a crisis sparked by the collapse of three mid-sized lenders earlier this year, is waiting to fund a potential increase in capital requirements and are holding off on buyback plans.

“Once we have some degree of certainty that we can hit our targets based on the new rules, I think that would put us in a position to really start thinking about share buyback,” Comerica CFO James Herzog said on a post-earnings call.