Steven Alexopoulos

Steven Alexopoulos asked if CEO Steve Steinour is concerned about lingering credit quality issues in the industry, given his experience since the GFC and recent stock performance. He also questioned if the 16%-17% medium-term ROTCE goal for 2027 signals a decline from current impressive returns and how that target would be achieved.

Answer

CEO Steve Steinour acknowledged potential isolated issues but believes the industry has de-risked significantly since the GFC, with banks generally in better shape due to diversification and disciplined risk appetites. CFO Zach Wasserman stated that the medium-term ROTCE targets were set conservatively, and the company is pleased to already exceed the high end, potentially leading to an adjustment of the range. The focus remains on driving tangible book value per share higher while maintaining strong returns.

Steven Alexopoulos of JPMorgan Chase & Co. asked where Huntington expects to land within its NII guidance range if two rate cuts occur this year and whether the recent loan growth from new initiatives is sustainable.

Answer

CFO Zachary Wasserman indicated that with two rate cuts, the bank is trending toward the middle of its NII guidance range, supported by strong loan pipelines and execution on deposit pricing. He clarified that the growth from new initiatives is not a one-time event but a steady build from core client acquisition that is expected to continue at its accretive trajectory.

Steven Alexopoulos expressed confusion over the NII guidance, noting that a three-cut scenario now points to the low end of the range versus the high end previously. He also asked if the net interest margin (NIM) has bottomed and about trends in noninterest-bearing deposits.

Answer

CFO Zachary Wasserman attributed the guidance shift to the delayed timing of expected rate cuts, which increases funding costs. He stated he expects NIM to be 'bouncing around these levels or rising' and for NII dollars to grow sequentially from Q1. Regarding deposits, he noted that noninterest-bearing balances saw continued drift in Q1, primarily on the commercial side, and are expected to stabilize in the high teens as a percentage of total deposits.

Steven Alexopoulos questioned the risk ranking of Truist's NDFI portfolio relative to peers and whether recent specific loan issues (Tricolor, First Brands, Cantor) signal an inflection point for the broader industry's credit outlook.

Answer

Chief Risk Officer Brad Bender stated that Truist's NDFI exposure is about 11% of its total lending portfolio, ranking ninth out of eleven among published data, indicating it's underweight relative to peers. He described it as well-diversified, granular, and composed of long-tenured relationships with global financial institutions. CEO Bill Rogers added that the NDFI portfolio is investment-grade looking. Brad Bender concluded it's too early to call recent events an inflection point for the industry, as Truist's performance does not demonstrate a broad-based deterioration.

Steven Alexopoulos of TD Cowen asked about the sensitivity of the full-year guidance for revenue and operating leverage to potential changes in the Fed rate cut outlook, specifically if targets could be met with no cuts.

Answer

CFO Mike Maguire stated that the company could likely still achieve its full-year guidance even with no rate cuts, noting that the outcome would depend more on the shape of the yield curve. He explained that since the assumed cuts are late in the year, the 2025 outlook is not highly sensitive to them, though it is a more significant factor for the following year.

Steven Alexopoulos questioned the sustainability of Regions' high mix of non-interest-bearing deposits and asked what environment would be needed for net interest margin (NIM) to expand further.

Answer

Senior EVP & CFO David Turner and President, CEO, & Chairman John Turner both emphasized that the bank's business model is built on primary checking and operating accounts, which supports a stable non-interest-bearing deposit mix in the low 30% range. For future NIM expansion, David Turner cited a more normalized yield curve, continued growth in core customer accounts, and disciplined deposit cost management as key drivers. They also stressed a focus on risk-adjusted returns over chasing loan growth.

Steven Alexopoulos of TD Cowen questioned the path to achieving the $12 billion year-end deposit target for the private bank, given the spot balance at the end of Q2. He also asked for more detail on the "Reimagining the Bank" initiative, specifically how it could be funded without a notable increase in expenses, a challenge faced by larger banks.

Answer

President Brendan Coughlin expressed confidence in the private bank target, noting that average deposit growth was healthy and that balances were already over $9.5 billion by mid-July. He cited the scaling platform and new teams as drivers. On the initiative's funding, Coughlin explained that it will include traditional efficiency efforts, like vendor simplification and real estate optimization, to help self-fund the more advanced technology investments. Chairman & CEO Bruce Van Saun added that CFG can leverage more "ready-made turnkey solutions" for AI, unlike larger banks that are doing more expensive pioneer work.

Steven Alexopoulos asked what it means for Fifth Third's business if a major fintech client like Stripe were to adopt its own stablecoin.

Answer

CEO Tim Spence described this scenario as a net positive business opportunity for Fifth Third. He explained that to operate, stablecoins require fiat on-ramps, off-ramps, and reserve management, all services the bank can provide. He emphasized that the primary use case for clients like Stripe is solving inefficiencies in cross-border payments, which is an area of opportunity for Fifth Third, rather than a threat to its domestic payments business.

Steven Alexopoulos asked if 200 basis points of positive operating leverage is sufficient to improve shareholder value, or if more revenue growth is needed. He also inquired how the bank plans to fund strong C&I loan growth with lower-cost deposits to expand NIM.

Answer

President & CEO Gunjan Kedia stated that while 200 bps of positive operating leverage is healthy, the larger opportunity lies in revenue growth, expressing confidence that consistent execution will be rewarded by the market. Vice Chair & CFO John Stern explained that funding will be supported by growing consumer deposits through products like BankSmartly, which attracts new, multi-service clients and improves the overall deposit mix and pricing flexibility over time.

Steven Alexopoulos of TD Cowen asked for color on the drivers of the strong trust fee income and its growth prospects. He also sought Daryl Bible's perspective on whether M&T feels a need to gain scale to compete with mega-banks for deposit growth.

Answer

CFO Daryl Bible attributed the strong trust income to investments in Europe and significant client wins. He also highlighted growth in subservicing and treasury management revenues, which were up 12-13% year-over-year. On scale, he stated M&T does not feel a burning need to get larger, emphasizing the success of its community-focused model, strong efficiency ratio, and the advantages of simplicity.

Steven Alexopoulos inquired about the drivers behind the strong performance in trust income and its sustainability as a growth engine. He also sought Daryl Bible's perspective on the argument that regional banks need more scale to compete with mega-banks for retail deposits.

Answer

CFO Daryl Bible attributed the strength in trust income to successful investments and expansion in Europe to support existing customers. He firmly rejected the need for massive scale, stating, 'Absolutely not.' He emphasized that M&T's community-focused, simplified business model and high efficiency ratio are key competitive advantages that resonate with customers and drive success without needing to be the largest bank.

Steven Alexopoulos of TD Securities asked if the strong commercial loan growth was a function of share gains or broader optimism in new markets. He also revisited the scale argument, questioning the benefit of a large deal when PNC appears to be in a 'sweet spot'.

Answer

Chairman & CEO William Demchak stated the growth was 'largely share gain.' On scale, he clarified they are focused on organic growth, not a large deal, but argued that scale is crucial for long-term competition in retail banking. He stressed the need to be in all markets to spread technology and marketing costs to effectively compete for retail deposits, which 'feeds the rest of our engine.'

Steven Alexopoulos from TD Cowen asked about Bank of America's AI strategy for productivity and questioned why the bank appears to be taking a more cautious stance on stablecoins compared to its leadership in other technologies like mobile banking and Erica.

Answer

CEO Brian Moynihan emphasized the bank's long track record of successfully applying technology at scale to drive efficiency, noting AI is the next phase of this. On stablecoins, he explained the cautious approach is due to the need for legal clarity and a yet-to-be-proven business case and client demand, while confirming the bank has the capabilities ready to deploy when appropriate.

Steven Alexopoulos of TD Securities asked how Citigroup views the competitive threat from stablecoin companies in cross-border payments and its appetite to disrupt itself. He also questioned why large banks haven't collaborated on a shared digital asset network, similar to Zelle, to counter new entrants.

Answer

CEO Jane Fraser positioned stablecoins as an opportunity, stating that Citi's Token Services offering is superior for corporate clients as it enables instantaneous, 24/7 cross-border movement between fiat and digital assets without the high transaction costs of traditional stablecoin models. She argued that Citi, as the global leader in payments, already has the 'killer app' and can provide a multi-asset, multi-bank solution for clients without needing to partner with other banks in the way Zelle was formed.

Steven Alexopoulos from TD Cowen questioned the competitive threat from stablecoin companies to Citi's cross-border payments business and asked why major banks don't collaborate on a network, similar to Zelle, to counter these new entrants.

Answer

CEO Jane Fraser asserted that Citi's offerings, like Citi Token Services, are superior for corporate clients by enabling seamless, low-cost, 24/7 fiat-to-digital currency movement while handling all compliance complexities. She stated that as the global leader, Citi does not need to partner with other banks to deliver this value proposition and that they have the 'killer app' for their clients, welcoming a level regulatory playing field to compete.

Steven Alexopoulos from JPMorgan Chase & Co. questioned the sufficiency of the $3.5 billion share repurchase plan to reach the 10.5% CET1 target by the end of 2025, asked about the potential for front-loading the buybacks, and inquired about the net interest income (NII) outlook given various rate cut scenarios.

Answer

CFO Craig Nix clarified that the current plan puts First Citizens on a path toward its CET1 target, but another repurchase plan may be initiated in the latter half of 2025 if capital accretion continues to outpace organic growth. Nix confirmed the plan is to methodically front-load the buybacks, with a heavier emphasis in late 2024. He also provided detailed NII projections, stating that with two rate cuts this year and four next year, NII ex-accretion would likely be down low-to-mid single digits from the Q4 2024 exit rate to the Q4 2025 exit rate.

Challenged the company on its 2024 earnings outlook, noting that the provided guidance components imply a roughly 40% drop in earnings. He pressed management to provide a specific net interest income (NII) forecast to give shareholders clarity, given the stock's significant pre-market decline.

Answer

Management stated that a 40% earnings drop sounds lower than they anticipate and pointed to the need to factor in securities and cash builds. They attributed the margin pressure to a substantial build in on-balance sheet liquidity (cash) required for Regulation YY compliance as a new Category IV bank. They declined to give a specific NII number, emphasizing that the actions taken are necessary for the long-term strategy of aligning with their new peer group.

Steven Alexopoulos of J.P. Morgan inquired about the reasons for the lowered Net Interest Margin (NIM) outlook since the recent Investor Day, its impact on the 2023 efficiency ratio guidance, and the dynamics behind the decline in checking account balances despite higher rates paid. He also asked for a sensitivity analysis of the NIM outlook if the Federal Reserve were to hold rates steady instead of cutting them in the latter half of 2023.

Answer

CEO and President Michael Roffler explained that the primary driver for the lower NIM outlook was the significant drop in the 10-year treasury yield, which increased the yield curve inversion. He adjusted the efficiency ratio guidance to a range of 66% to 68% due to the revised revenue outlook. Roffler noted that while checking balances have seen some outflow as clients seek higher yields in products like CDs, the bank maintains a strong deposit beta assumption of 30-35%. He stated that a stable, higher-rate environment wouldn't significantly alter the 2023 NIM outlook, but it might delay the inflection point for net interest income growth by a quarter.

Steven Alexopoulos questioned First Republic Bank's outlook for 2023, focusing on the dual concerns of securing sufficient deposit funding for continued strong loan growth and the potential for significant net interest margin (NIM) compression. He asked for specific NIM expectations for 2023 and how the efficiency ratio would be managed if the forward curve materializes.

Answer

CEO and President Mike Roffler acknowledged near-term margin pressure due to rapid rate hikes but emphasized the long-term strategy of client acquisition and maintaining pristine credit. He projected the Q4 2022 NIM would start below the guided range, setting a baseline for 2023. Chief Banking Officer Mike Selfridge provided current loan yields, noting single-family at 4.80% and multifamily at 5.50%. Roffler added that the efficiency ratio would be managed through variable compensation levers and reprioritization, suggesting the recent 60% level is not a sustainable launch point for Q4 and beyond.

In a follow-up question, Steven Alexopoulos asked Founder and Executive Chairman Jim Herbert for his high-level assessment of the economic risks ahead, drawing on his 37 years of experience in the industry.

Answer

Founder and Executive Chairman James Herbert described the current environment as a 'normal but somewhat rapid tightening cycle' following a long period of cheap money. He stated that the Fed is playing catch-up and that a recession is likely, which will help stabilize excesses. He believes we are in the 'second or third inning' of what is required to tame inflation and does not view the situation as overly threatening to the bank's stable, service-oriented model.