Wedbush Downgrades Regions Financial, Sees Slowing Capital Returns, Leverage To T-Note Yield

Regions Financial Corp RF has so far lagged its deposit betas versus peers to remain competitive, but it may not be able to continue to do so, according to Wedbush. 

A slowdown in capital return in 2019 and beyond, as well as the company’s higher-than-peers leverage to the 10-year treasury yield, are causes of concern, in the research firm's view. 

The Analyst

Analyst Peter Winter downgraded Regions Financial from Outperform to Neutral with an unchanged $17 price target.

The Thesis

Although deposit costs remain low, they are rising, Winter said in a Monday note.

Regions Financial’s deposit betas could increase more in-line with peers, since its attractive deposit franchise, lack of balance sheet growth and potential to run off high-cost brokered deposits are nearly done, the analyst said. 

Backed by aggressive share repurchases, Regions Financial has offered the highest total capital return in recent years, Winter said. Share buyback activity is likely to decelerate significantly once the company completes its current authorization in the second quarter, he said. 

Around 30 percent of the company’s balance sheet is tied to the 10-year treasury, much higher than most other banks, Winter said. With the yield declining to 2.7 percent, the repricing benefit has narrowed from the earlier projected 100-110 bps to 30-50 bps, he said. 

Price Action

Regions Financial shares were up 0.49 percent at $15.40 at the time of publication Monday. 

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