Corporate Borrowers Feeling 'Unease'
At Morgan Stanley financials conference, banks reported that corporate clients are cautious about borrowing because of concern over trade and interest rates.
Several banks at Morgan Stanley’s financials conference—including Citizens Financial Group and Fifth Third Bancorp—said that corporate borrowers are becoming more cautious due to uncertainty about trade and interest rates, along with “overall economic unease.”
That may “suggest future pressure on loan growth,” Morgan Stanley analyst Ken Zerbe wrote in a note on midcap bank takeaways from his firm’s event, which was held this week. He added that executives were “quick to point out” that commercial clients’ concern isn’t yet resulting in weak loan growth and that credit quality is still strong.
Other key takeaways: Banks are hedging their interest rate exposure, but it may be too late to help much. Recession isn’t enough of a risk factor to deter banks from continuing buybacks. And New York legislation around rent-regulated apartments poses a “meaningful headwind” for New York Community Bancorp (NYCB) and Signature Bank.
At the conference, NYCB and Signature Bank executives said the new rent legislation may lead to a “sizable decline” in commercial real estate property values, he said. Morgan Stanley fears loan growth may slow “materially” and cut earnings-per-share estimates for NYCB on lower prepay income.
Comerica Inc., on the other hand, “surprised to the upside” with stronger-than-expected loan growth so far in the second quarter, he said. Other analysts had flagged slides released ahead of Comerica’s presentation, saying they showed better-than-expected loan and deposit growth, though those positives may be offset by other factors, including soft net interest margin.
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