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Recession Risk Is Growing With Rate Hikes, Regional U.S. Banks Say -Breaking


© Bloomberg. Jerome Powell, the chairman of U.S. Federal Reserve, addresses a Senate Banking, Housing, and Urban Affairs Committee confirmation meeting in Washington, D.C., U.S. on Tuesday, January 11, 2022.

(Bloomberg) — The heads of some of the largest U.S. regional banks see mounting risks for a recession brought on by the Federal Reserve’s interest-rate hikes, even as those increases are set to bolster lending revenue. 

Fed policy makers are struggling to contain consumer prices that surged 8.5% from a year earlier in March, with Chair Jerome Powell saying a half-point interest-rate hike “will be on the table” in May.

While the increases will benefit banks in the short-term by increasing the interest they collect on loans, executives say there’s a danger the central bank will tighten too aggressively.

“It could be hard to soft-land the economy,” Fifth Third Bancorp (NASDAQ:) Chief Executive Officer Greg Carmichael said in an interview. “In the latter part of 2023, we could be in a recessionary state.”

Lending businesses have been growing steadily in the interim. According to Bloomberg data, the median loan growth for the first quarter was 1.4% higher than the three previous months in a group US banks with the most publicly traded shares.

Excluding loan balances linked to the Paycheck Protection Program and an auto-loan portfolio the company sold, KeyCorp’s average loans were up 15% in the first quarter from the same period a year earlier. This helped counterbalance weakness in investment banking, which the CEO Chris Gorman said was due to market volatility.

“If you were going to do an initial public offering, you wouldn’t knowingly wade into a choppy market,” Gorman said in an interview.

The lender anticipates that loans will increase by 10% in the next year. Other banks, however, are equally bullish.

Predictions for Loans

PNC Financial Services Group Inc (NYSE:). Robert Reilly, chief financial officer of PNC Financial Services Group Inc (NYSE:), stated that the bank expects an average 10% loan growth for the entire year. This was according to Robert Reilly who spoke on an earnings conference last week. The bank didn’t provide guidance on that metric when it reported first-quarter 2021 results last April.

Executives are aware that even though the outlook for loan growth is positive, the economy could be worsening.

“While we believe the economy is on sound footing in the near term,” Truist CEO Bill Rogers (NYSE:) Jr. said in a conference call with analysts Tuesday, “the headwinds of geopolitical uncertainty coupled with the inflationary environment and aggressive forecast for the tightening of monetary policy create a wide range of economic outlooks as we move further into this year and next.”

©2022 Bloomberg L.P.