Bank share prices fell sharply in the third week of 2017, as more banks reported Q4 earnings. Initial positive readings of earnings shifted to the negative, as investors were disappointed by lack of traction in the lending segment as well as setbacks in noninterest income generation. Net interest margins were flat for the largest banks in Q4, despite a steepening yield curve and the highest bond yields since mid-2015.
Shares of the largest banks were down -2.9% (led by Citigroup with a -5.9% drop), while regional banks fell by -2.7% for the week. The broader stock market was off by a modest -0.1% and bond yields rose by 9 basis points to a yield of 2.467%, which would normally be a positive for bank shares.
We expect to see more market volatility, as regional and small banks continue to report Q4 earnings over the next couple weeks. The policy picture should also start to evolve as the new Trump Administration and Congress impact bank legislation and regulation.
Overall commercial real estate lending growth picked up momentum in the second week of January, with strong growth in the construction/land development and the commercial mortgage segments. Construction and land development lending jumped to a 19.3% annualized rate. Multifamily mortgage lending turned positive, with a 5.9% annualized growth rate. Commercial mortgages grew at an 18.8% annual rate. The weekly figures for construction and land development lending and commercial mortgage lending were above year-end figures for 2016, while multifamily lending growth was well below the annual rate for 2016.
Compliments of Trepp – a member of the EACCNY