The Wall Street sign is pictured at the New York Stock Exchange (NYSE) in the Manhattan borough of New York City, New York, USA, March 9, 2020. REUTERS/Carlo Allegri/File Photo acquire license rights
NEW YORK, Nov 16 (Reuters) – U.S. bank CEOs warned that a slowing economy and rising geopolitical tensions could weigh on profits, but said the industry was regaining its footing after the biggest bank failures since the 2008 financial crisis.
Here are quotes from a conference hosted by The Clearing House in New York:
William Demchak, CEO of PNC Financial, on risks to the outlook:
“In the short term, it’s actually due to the fragility of our Treasury market and the funding of the U.S. government. I think we’ve put a lot of the capital of the big banks that would traditionally play a role in this into unregulated, heavily leveraged banks. funded by prime brokerage, but we don’t necessarily have an idea of how that leverage impacts the system.”
“And if the Fed loses control of the tail end of the yield curve because those positions are unwound in one way or another, I think that is a catastrophic outcome.”
Curtis Farmer, CEO of Comerica Bank:
“There has never been a time in my career when there has been so much uncertainty,” including geopolitical tensions and potential cyberattacks by bad actors, he said.
Michael Roberts, CEO of HSBC North America on cyber risks:
“It’s out there, it’s very real… it’s getting more and more sophisticated.” And climate risk “will affect all of us in ways we don’t even know about yet.”
Thomas Michaud, CEO of the investment bank Keefe, Bruyette & Woods (KBW), on the industry outlook:
“We expect banking sector profitability to decline by 10%… despite three of the four largest bank failures in American history occurring this spring, the industry is in good shape,” but faces rising loan defaults and competition from fintech companies can cope.
Erika Najarian, analyst at UBS:
“The banks are actually in pretty good shape…of course they are less profitable, we are at the back end of the cycle.”
“Nobody wants to own a lot of bank stocks, whether they’re large-cap or mid-cap, before a credit crunch or before a recession.”
Manan Gosalia, analyst at Morgan Stanley:
“Specifically for the regional banks, we are currently in the worst phase of the cycle… We are likely to see increases in deposit costs and funding costs well into 2024, so there are some challenges on the revenue side. It is likely that loan growth here will slow significantly.
Eugene Ludwig, former Comptroller of the Currency and CEO of Ludwig Advisors, on bank mergers and acquisitions:
For insolvent banks in a Federal Deposit Insurance Corp. After the sales process has been carried out, it can be very attractive to acquire the underlying institution as long as they have the backing to get the liquidity back… The more we can preserve the private sector the more sector is back in play, the better off we are. “
Mitch Eitel, managing partner of the financial services group at law firm Sullivan & Cromwell:
“No one is going to touch, step in and buy a failing institution, especially in our current environment where there are embedded costs in the balance sheets that no one can see.”
Michaud, CEO of KBW:
“I think there are a lot of healthier banks that would try to take over banks with bad credit ratings. But the time it takes to approve a merger application has doubled in the last two and a half years. And “That really raised the bar for potential buyer readiness.”
Andy Cecere, CEO of US Bancorp, on the use of artificial intelligence in banking:
“This is going to be a big deal. I think that we’re all working on use cases and we’re also working with our regulators on those use cases because we want to make sure that we’re creating mechanisms and processes that don’t have bad outcomes, bad decisions, bias.”
Reporting by Lananh Nguyen, Nupur Anand and Pete Schroeder in New York; Edited by Mark Potter and Daniel Wallis
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