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KeyCorp (NYSE:KEY) stock dropped 7.4% in Monday late morning trading after Chief Financial Officer Clark Khayat said the bank sees Q2 net interest income coming in softer than it had earlier expected, “based on funding mix and deposit cost pressures.”
The company expects Q2 NII to decline ~12% vs. 4%-5% that it had guided in the company Q1 earnings call. As KeyCorp (KEY) exited Q1, it had a cumulative deposit beta kind of in high 20s — “that was relatively strong. That’s based on having been retention-oriented in our deposit strategies,” he said at an industry conference.
In May, the bank started to pivot to more acquisition-oriented strategy in deposits. “That’s caused the deposit pricing to accelerate a little bit more than we expected,” Khayat said.
Overall, he expects Q2 loans and deposits to come in on track with previous guidance.
CEO Chris Gorman noted in his remarks that clients are demanding higher interest rates on their deposits and banks of KeyCorp’s size are likely facing higher capital and liquidity requirements by regulators. “We’re paying very close attention to our RWAs (risk-weighted assets) because we don’t know how this is going to play out,” he said.
The upshot of recent bank stresses is that banks will have lower loan-to-deposit ratios, which means people will be focused on the quality of deposits, Gorman said.
In late March, Citi upgraded KeyCorp (KEY) and M&T Bank (MTB) to Buy after Citi conducted a stress test on regional banks.
However, SA analyst Eugenio Catone is a bit cautious as he advises investors to consider the risk of rising deposit beta and the effects of the Fed’s monetary policy.
