By Manya Saini
(Reuters) -Bank stocks were lower in early trading on Thursday as lenders reported mixed quarterly results, while shares of Discover Financial Services tanked after it disclosed a regulatory review over some of its credit products.
Discover’s shares fell 14% as it revealed discussions with regulators about how it misclassified certain credit card products for about 15 years.
The company incorrectly classified certain credit card accounts into its highest merchant and merchant acquirer pricing tier, beginning around mid-2007, Discover said after markets closed on Wednesday, adding it has paused share buybacks.
Discover added it has also received a proposed consent order from the Federal Deposit Insurance Corporation (FDIC) in connection with consumer compliance that does not include the card product classification matter.
Meanwhile, two major mid-sized banks missed quarterly profit estimates, while one came ahead of Wall Street expectations on Thursday. The KBW Regional Banking Index was down 0.8% in morning trade.
KeyCorp shares dropped 1.9% after the bank’s profit plunged 50% and it forecast a decline in net interest income.
The bank said it expects NII to decline 4%-6% in the current quarter compared with the previous three months, and loans to fall between 1% and 3% over the same period.
The dour forecast for loans comes in the backdrop of the U.S. Federal Reserve’s monetary policy tightening that has raised borrowing costs significantly over the last 12 months.
Truist Financial shares declined 4.8% after the lender missed estimates for second-quarter profit.
Average deposits at Truist declined 2% sequentially as customers continue to chase higher yielding alternatives for better returns. They fell 5.7% in the second quarter compared with a year earlier.
Deposits at regional lenders have been in focus since a sector-wide crisis of confidence in March led to panicked customers moving their deposits to larger, “too-big-to-fail” rivals and money market funds.
Outperforming peers, Fifth Third Bancorp’s shares rose 1.9% as the bank’s quarterly profit topped expectations, even as it trimmed its growth forecast for full-year NII.
The bank, on a post-earnings conference, said it expects the high competition for deposits to remain for the rest of the year.
Analysts have warned that banks would need to raise the interest they offer clients on their account balances, bringing deposit costs in focus for the remainder of the year.
Zions Bancorporation jumped 5% after the regional lender reported a sequential rise of about 7% in total deposits during the second quarter late on Wednesday.
Major U.S regional banks said on Wednesday their deposits mostly stabilized and NII rose in the second quarter as the sector looks to leave its biggest crisis since 2008 in the rear-view mirror.
Executives at Truist echoed the sentiment in a call with analysts saying overall deposit trends have stabilized significantly, after declining in the quarter due to client activity in March.
(Reporting by Manya Saini in Bengaluru; Additional reporting by Jaiveer Shekhawat, Sri Hari N S and Niket Nishant; Editing by Shweta Agarwal and Krishna Chandra Eluri)
