Recent updates from bank executives reinforce the idea that while deposits have stabilized, the industry faces pressure from rising funding costs, weaker lending and coming regulations, according to Piper Sandler analysts. Disclosures from conferences in the past week compelled Piper Sandler to cut its 2023 per share earnings estimates by a median 4.8%, with bigger declines for regional firms compared with the large banks, analysts led by R. Scott Siefers wrote Thursday. The analysts named two picks for the current environment: “From here, our favorite large regional is Fifth Third Bank , and we find U.S. Bank a compelling value for patient investors,” Siefers wrote. Regional bank stocks have r ebounded off the year’s lows in recent weeks. The group plunged in March after the sudden collapse of Silicon Valley Bank, an event that ultimately claimed two more midsized lenders. Concerns over further deposit runs have calmed, but attention has now shifted to medium and longer term headwinds for the industry. “Undoubtedly, the deposit panic from earlier this spring has subsided,” Siefers wrote. “But one lasting impact from March’s shock is that depositors have clearly awoken to how much they can earn on their $, which in turn continues to put more visible pressure on funding costs.” The analyst said that customers’ move away from non-interest bearing deposits and falling demand for loans have prompted several regional banks to lower their 2023 guidance for net interest income. NII, which is the interest generated by loans and investments after paying depositors, is one of the main sources of revenue for banks. Given that backdrop, Piper Sander focused on two “buy”-rated banks that could outperform their peers. Fifth Third Bank is “now among the most conservative on through-the-cycle [deposit] assumptions and preparedness for a sustained challenging environment,” Siefers wrote. “As such, the company should be better protected than some others.” U.S. Bank’s earnings story is “holding in as well as we could hope” and investors will be “well-rewarded for owning an excellent company” with “best-in-class” returns, he added. With contributions from CNBC’s Michael Bloom
