Earnings reports ease bad debt fears, U.S. regional banks rebound, executives say "credit quality is solid."
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A previous article by Wallstreetcn stated that some US regional bank loans were written off due to fraudulent activities, triggering the biggest bank stock sell-off in six months on Thursday.
This Friday, several banks released their third-quarter results and loan loss provisions below analyst expectations. Executives also tried to reassure rattled investors, and regional bank stocks rebounded somewhat.
Fifth Third Bancorp, which had previously disclosed business dealings with Tricolor, said its loan loss provision last quarter was $197 million, lower than analysts’ estimate of $239 million.
Fifth Third’s Chief Credit Officer Greg Schroeck said, regarding the Tricolor loan issue,
“We conducted a focused assessment during a comprehensive review of the loan portfolio,”
“Given our comprehensive review, we are very confident about the credit quality of other clients in this category.”
Fifth Third’s CEO Tim Spence also pointed out that the bank “did indeed have business ties with First Brands in the past, but terminated the relationship years ago due to issues discovered in collateral review.”
Fifth Third shares closed up 1.31% on Friday; the KBW Bank Index closed up 0.51%.
Additionally, regional bank Truist Financial Corp. had a third-quarter loan loss provision of $436 million, down 2.7% from a year ago, and lower than the market expectation of $484.9 million. Net charge-offs were $385 million, significantly below analysts' estimate of $450.6 million.
The bank did not have dealings with Tricolor Holdings, but stated it did have some level of business with First Brands. Its stock closed up 3.67% on Friday.
Truist CEO Bill Rogers said on a conference call:
“Overall credit quality remains solid.”
“Currently, there are some incidents in the market that I consider to be isolated and unrelated to one another,” and said the bank was being “highly vigilant” about credit risk.
Auto loan lender Ally Financial Inc. also released its financial results on Friday. Given Tricolor’s recent high-profile bankruptcy last month, the market paid special attention to its performance. Its loan loss provision was $415 million, lower than analysts’ forecast of $455 million. Its shares closed up 3.56% on Friday.
Regions Financial Corp’s loan provision was also below expectations; net interest income missed estimates. Its stock closed up 0.99% on Friday.
Huntington Bancshares Inc. reported net charge-offs of $75 million, down 19% year-over-year and below analysts’ expected $87.4 million. However, its loan loss provision was $122 million, up 15% year-over-year and higher than the market estimate of $106 million. Its shares closed up 0.85% on Friday.
Last month, subprime auto loan firm Tricolor Holdings collapsed due to alleged fraud. Coupled with the bankruptcy of auto parts manufacturer First Brands Group, this sparked market concerns that banks may face significant loan losses if the credit market starts to deteriorate.
What worried the market further was the situation with Zions Bancorp, which disclosed on Thursday that its wholly-owned subsidiary California Bank & Trust had written off a $50 million loan, causing its stock to plunge 13%. Western Alliance Bancorp also saw its shares fall nearly 11% after reporting that its borrowers overlapped with those mentioned above.
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