Morgan Stanley cuts forecasts for regional banks Western Alliance dives into the latest financial developments

The outlook for banking stocks remains mixed as first-quarter earnings approach. Morgan Stanley cut its forecast for mid-cap banks early Wednesday and suggested Wall Street could do the same. Western Alliance shares plunged after its financial update. But Zion Bancorp fell early Wednesday despite earning a promotion from Baird.


Western Alliance Update

Phoenix based Western Alliance Bancorp (WAL) provided a financial update ahead of its first-quarter earnings report in late April 18th.

Western Alliance’s total insured deposits account for 68% of total deposits, which is “significantly higher” than it was at the end of the year. However, that may reflect an exodus of uninsured deposits over the past several weeks.

As of the end of the quarter, the Bank’s coverage ratio was greater than 140% and available liquidity exceeded uninsured deposits. Western Alliance says it has no loans outstanding from the Fed’s discount window after adjusting the balance sheet.

Unrealized losses on securities and loans held for investment (HFI) have improved since the end of the year due to lower interest rates, according to the bank.

Western Alliance estimates unrealized losses on held-to-maturity securities at $139 million, up from $177 million at the end of the year. Security losses available for sale fell to $789 million from $881 million at the end of the year.

HFI loan losses improved to $2.9 billion from $4.2 billion at the end of the year. Western Alliance says it holds interest-free deposits beyond its home loans, which are the main driver of unrealized losses for HFI loans.

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The losses were partially offset by $431 million in unrealized gains on debt and other borrowings, up from $121 million at the end of the year.

WAL stock fell 17% to 27.80 Wednesday after the update.

Morgan Stanley cuts forecasts of the regional bank

Morgan Stanley said Wall Street’s estimates for regional banks should fall significantly ahead of the first-quarter earnings season, The Street Insider reported early Wednesday. “We recommend fading any rally — the medium-term outlook is tough for every driver of average bank revenue,” Morgan Stanley analyst Mana Josalia wrote in a research note Wednesday, citing fund costs, loan growth, fees and expenses, provisions and principal.

Morgan Stanley cut its 2023 and 2024 financial estimates by 17% and an average of 27% for the group, putting them well below current consensus lows. “Nobody is immune, but (we) prefer banks with flexibility in financing,” Josalia wrote. M&T Bank (mtb), Webster Finance (WBS), financial citizens (CFG), Colin / Frost Bankers (CFR) And Huntington Bankshares (Haban).

Those banks showed modest losses at the opening on Wednesday.

Zions Upgrade

Baird analyst David George disagrees with Morgan Stanley’s view. He modernized Salt Lake City Zion Bancorp (Zion) to outperform from Neutrality early on Wednesday. Sentiment has been so bad in recent weeks, George wrote in a research note, and the group’s vulnerability “beyond exaggerated.” He says market participants appear to be seeking the “permanent destruction of profitability,” which Baird finds unlikely, leaving a “significant rally” in ZION stock. George maintained his target price of 60 on Zion.

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ZION stock, which was up a bit in premarket trading, fell 2% shortly after Wednesday’s open.

SPDR S&P Regional Banking ETF (KRE), which includes shares of WAL, Zions and several other regional banks, fell 1.9% Wednesday morning, not far from its lowest level in two years.

You can follow Harrison Miller for more stock news and updates on Twitter @employee

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