RF, CFG cut to Neutral, FITB, KEY reiterated Overweight at Piper

With large regional banks' earnings season in the rearview mirror, Piper Sandler analyst Scott Siefers reiterated his Overweight ratings on Fifth Third Bancorp (NASDAQ:FITB) and KeyCorp (NYSE:KEY). At the same time, though, he tightened up his preferences on Citizens Financial Group (NYSE:CFG) and Regions Financial (NYSE:RF), downgrading both lenders to Neutral from Overweight.

In a note to clients, Siefers laid out five key takeaways from last week's large regional bank earnings (based on nine lenders in his coverage):

• Although the Wall Street consensus signals banks' net interest income should find a bottom in the next quarter or two, higher-for-longer rates remain "the primary risk to this outlook;"
• Loan growth outlooks remain weak, given a lack of demand, higher borrowings costs and macroeconomic uncertainty;
• Controlling expenses is "a major focus area into 2024E," due to a slew of revenue pressures and "the inherent profit effects from higher capital requirements;"
• Credit is normalizing, though remains at historically robust levels; and
• "These banks have credible plans to rebuild their regulatory capital to levels consistent with outstanding proposals."

For Regions Financial (RF), in particular, the sell-side analyst thinks a combination of its Q3 earnings miss and some credit deterioration suggest the stock "will be too rangebound for now for it to return to outperformance over the next year." On Friday, Wedbush also downgraded Regions (RF), which saw its stock tumble at the time.

Citizens Financial (CFG), meantime, still looks good in terms of its model, management team and long-term prospects, "but with myriad moving parts, the potential to outperform seems further out than we would like," Siefers said.

Wolfe Research analyst Bill Carcache early this week upgraded CFG as its risk-reward profile became more balanced. The move came after the lender last week saw its stock dip after its Q3 earnings and revenue missed Wall Street expectations as higher interest rates drove up its funding costs.

More on Citizens Financial, Fifth Third Bancorp, etc.