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Hotter-than-expected inflation in the United States has dampened expectations of imminent rate cuts by the Federal Reserve, which has said it needs to see convincing evidence of prices cooling off before it starts easing its monetary policy.
With no hopes of relief, potential borrowers could delay plans to take out a loan, hurting banks’ interest income. Stricter lending standards to minimize bad debts and higher deposit costs to prevent customers from fleeing to other high-yielding alternatives, could also be a drag.
Comerica expects its net interest income (NII) – the difference between what lenders earn on loans and pay on deposits – to be 11% lower in 2024 from last year, while KeyCorp (NYSE:KEY) sees its NII down between 2% and 5% in the same period.
NII in the first quarter fell 23% for Comerica and 20% for KeyCorp, similar to peers that have reported so far.
“We see 1Q24 as a bit of a mixed bag for Comerica,” J.P. Morgan analyst Steven Alexopoulos said, noting that the company’s credit quality remains a bright spot.
Comerica’s allowance for credit losses stood at $728 million, higher than last year but in-line with the fourth quarter.
The company’s overall profit fell 57%, while that of KeyCorp’s slid 33.5%. The results were also impacted by the banks’ contribution to replenish the Federal Deposit Insurance Corp’s deposit insurance fund, which was hit by three bank failures last year.
So far this year, Comerica’s shares have dropped nearly 11%, while KeyCorp stock is marginally up.
