Fed Rate Cuts Will Pressure Regions Financial, BofA Says In Move To Sidelines

The Fed is expected to announce three rate cuts through 2020, which could result in decelerating EPS growth at Regions Financial Corp RF, according to Bank of America Merrill Lynch.

The Analyst

Erika Najarian downgraded Regions Financial from Buy to Neutral and reduced the price target from $18 to $16.

The Thesis

The Fed could announce rate cuts in July 2019, September 2019 and March 2020, exerting pressure on Regions Financial’s net interest income, Najarian said in the downgrade note. (See her track record here.) 

When asked about possible Fed rate cuts at a recent investor meeting, Regions management expressed confidence in the net interest margin remaining within the long-term range of 3.4-3.7%, the analyst said. Regions Financial will be able to sustain NIM at the low end of the range, she said. 

BofA projects 2020 and 2021 NIM of 3.39% and 3.38%, respectively, citing hedge activity and likely aggressive deposit re-pricing.

NII may decline by 2% in 2020 and by 1% in 2021, Najarian said.

“First, we expect loan growth to cool from robust 1Q levels. Second, we expect the planned run-off of loans originated from GreenSky GSKY to inhibit total loan growth.”

BofA reduced EPS estimates for 2019, 2020 and 2021 from $1.58 to $1.57; from $1.70 to $1.62; and from $1.80 to $1.66, respectively.

Price Action 

Regions Financial shares were up 0.92% at $15.20 near the end of Thursday's trading session. 

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