US bank profits shrink on higher deposit costs, one-time charges
By Manya Saini, Niket Nishant and Lananh Nguyen
(Reuters) -Several U.S. banks reported a plunge in fourth-quarter profits on Thursday, hurt by a drop in interest income and charges tied to replenishing a deposit insurance fund.
Higher payouts on deposits to retain customers from chasing high-yielding alternatives have resulted in an industry-wide contraction in net interest margins for the banks that had until recently benefited from the U.S. Federal Reserve's rate hikes.
Potential Fed rate cuts this year will likely further dent margins this year, some banks have warned.
Meanwhile, most U.S. banks are also paying the Federal Deposit Insurance Corporation (FDIC) a fee to refill its insurance fund, used to safeguard customer deposits in case of bank failures.
On Thursday, another top regulator announced plans for new short-term liquidity rules to help lenders respond to bank runs like the ones that crushed three banks last year.
MUTED DEMAND
KeyCorp (NYSE:KEY) posted a near 92% plunge in quarterly profit and forecast a 2%-5% drop in its net interest income (NII) in 2024. Total loans at the end of the quarter were nearly $114 billion, 3.2% lower than the year before.
Borrower appetite is «muted,» KeyCorp CEO Chris Gorman told Reuters in an interview. «There is not a lot of loan demand, there are not a lot of transactions.»
Raymond James analyst David Long said KeyCorp's stock could be under pressure as the bank's earnings per share get squeezed.
Shares fell 5.5% to $13.10.
DEPOSIT COST CONCERNS
Investors are closely monitoring deposit cost trends in bank earnings reports this quarter. Reuters reported earlier this month that analysts fear 2024 earnings per share at 11 U.S. regional banks will drop from a year earlier,
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