Smaller Banks Look to Shrink Their Way Back to Health

livemint.com:

Regional banks have shelled out more and more to depositors to get them to stick around. For many, that still hasn’t been enough. After an ugly third quarter, banks rolled out plans last week to try to shrink themselves back to health.

Profits dropped by double digits from a year earlier at a number of them, including 44% at KeyCorp, 32% at Citizens Financial and 28% at Truist Financial. KeyCorp said it would become a “smaller, simpler company." PNC Financial disclosed that it would lay off thousands of employees. Truist, which sold its student loan portfolio this summer, said it would downsize other books with lower returns.

Citizens recently said that it would exit the auto loan business and continue to scale back its mortgage business. “When deposits are more dear and they’re more costly, then you say, well, I really don’t want to be funding that," Citizens Chief Executive Officer Bruce Van Saun told The Wall Street Journal. Investors are getting nervous.

Citizens shares slid nearly 6% on Wednesday after it reported earnings, and U.S. Bancorp shares were down more than 4%. Shares of Zions Bancorp sank almost 10% on Thursday.

Regions Financial slid more than 12% on Friday. Megabanks have also had to pay more for deposits, but so far it hasn’t been nearly as painful for them. JPMorgan Chase, Bank of America, Wells Fargo and Citigroup collectively earned about $30 billion in the third quarter, a 27% increase from a year earlier.

They have the cushion of big operations in businesses such as trading, investment banking and wealth management. The Federal Reserve has raised interest rates 11 times since last year in an attempt to curb inflation. Higher rates are usually a boon for banks since they can charge more for loans.