Recession risk increases with rate hikes, regional US banks say by Bloomberg


©Bloomberg. Jerome Powell, chairman of the US Federal Reserve, speaks at a hearing of the Senate Committee on Banking, Housing and Urban Affairs in Washington, DC, US, on Tuesday, January 11, 2022.


(Bloomberg) — The heads of some of the largest regional banks in the US are seeing increasing risks of a recession from the Federal Reserve’s rate hikes, even as those hikes will bolster loan income.

Fed policymakers are struggling to contain consumer prices that rose 8.5% in March from a year earlier, with Chairman Jerome Powell saying a half-point rate hike “will be on the table” in May.

While the hikes will benefit banks in the near term by raising the interest they receive on loans, executives say there is a danger the central bank could tighten too aggressively.

“It can be difficult to soften the economy,” Fifth Third Bancorp (NASDAQ:) Chief Executive Officer Greg Carmichael said in an interview. “We could be in a recession in the second half of 2023.”

Meanwhile, lenders are stronger. Loan growth in the first quarter was 1.4% higher on average than in the previous three months at a group of the largest publicly traded US banks that reported results on Thursday, according to data collected by Bloomberg.

Excluding loan balances tied to the Paycheck Protection Program and an auto loan portfolio the company sold, KeyCorp’s average loans in the first quarter rose 15% from the same period a year earlier. That helped counter the weakness in investment banking at the Cleveland-based firm, which CEO Chris Gorman attributed to market volatility.

“If you went public with an IPO, you wouldn’t knowingly enter a tumultuous market,” Gorman said in an interview.

In the short term, the lender expects full-year loans to increase by a percentage in the mid-teens, and other banks are optimistic as well.

Loan forecast

PNC Financial Services Group Inc (NYSE:). expect 10% average credit growth for the full year, Chief Financial Officer Robert Reilly told analysts and investors during an earnings call last week. The bank did not provide advice on that statistic when it reported its results for the first quarter of 2021 last April.

Even with the rosy outlook for loans, executives are aware that the economic picture can obscure.

“While we believe the economy is in good shape in the near term,” said Truist CEO Bill Rogers (NYSE:) Jr. In a conference call with analysts on Tuesday, “the headwinds of geopolitical uncertainty coupled with the inflationary environment and aggressive forecasts for monetary policy tightening are creating a broad range of economic prospects as we move forward this year and next.”

©2022 Bloomberg LP

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