Q4'23 Inside The Buy-Side® Earnings Primer®

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U.S. Big Banks Sector Beat

Yesterday, we published our 33rd issue of our Inside the Buy-Side® Industrial Sentiment Survey®.

At a fundamental level, banks fared better than many feared coming out of the banking crisis last quarter. Many of the big lenders are benefiting from increased loan books and higher profits attributed to higher interest rates. That said, deposit competition is in full swing, as many of the regional lenders have been compelled to increase their rates to retain customers. This has led to a surge in deposit costs across the industry, which has proven to be particularly challenging for some of the smaller institutions.

In line with our Inside The Buy-Side® findings, most banks are reporting negligible deal activity, a function of the current macro uncertainty, moderating growth, and a higher interest rate environment.

In spite of these sector-specific challenges, executive commentary suggests the consumer remains fairly resilient, though is exhibiting “marginal” signs of weakness. Take credit cards, for example. Despite spending levels ticking up, banks are seeing more borrowers carry balances each month, and more balances are translating into more delinquencies, albeit off low levels.

Most outlooks remain uncertain as management teams hesitate to seem too confident solely based on current conditions while everyone watches the potential impacts of higher interest rates filtering through the economy in the coming quarters.

Key Themes:

  • Macro — Executives Continue to Express Caution Over the Economy in the Near Term; Some Suggest M&A Activity Should Pick Up as the Year Progresses
  • Liquidity — Banks Tout System Stability and Rising CET1 Ratios but Voice Unanimous Opposition to Basel III Endgame Proposals, Which Could Ratchet Up Capital Requirements and Result in Higher Cost of Capital for Consumers and Businesses
  • Commercial Real Estate (CRE) — A Key Area of Caution Moving Forward, Banks Emphasize Increased Reserves and De-Risking, with Some No Longer Pursuing Any New CRE Loans
  • Deposits & Net Interest Income — Big Banks Weather Deposit Outflows Better than Regionals; More Competition for Deposits May Lead to Continued Higher Borrowing Costs for Corporations
  • Consumer Health — Execs Observe More Post-Pandemic Normalization, Resiliency, and Increasing Vigilance with Regard to Consumer Spending and Savings; Renters are Worse Off than Homeowners and Small Businesses Appear to be Holding Up So Far
  • Outlook — Executives Increasingly Forecast a Mild Recession in 2024, While Uncertainty Continues to Cloud Commentary

Corbin Advisors is a strategic consultancy accelerating value realization globally. We engage deeply with our clients to assess, architect, activate, and accelerate value realization, delivering research-based insights and execution excellence through a cultivated and caring team of experts with deep sector and situational experience, a best practice approach, and an outperformance mindset.

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