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Charles Schwab, US Bancorp and Citizens Financial reported fourth-quarter results ahead of the opening bell Wednesday as the regional banks cap off a tough year.
"We've seen continued pressure on deposits, continued pressure on liquidity, and really a reminder that higher for longer rate environment is here," S&P's Nathan Stovall told Yahoo Finance Live.
Stovall added: "Wall Street has been very concerned about the group's exposure to commercial real estate in particular, but thus far we really haven't seen anything that would look any different than, call it normalization in credit trends. Because remember, the group's really been over-earning on credit... they've had very little lost content in the form of charge-offs activity, and provisions have been historically low."
Shares of Charles Schwab led the decline for regional banks after disclosing net new assets fell 48% on the year, short of Wall Street expectations.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino.
Video Transcript
BRAD SMITH: Nathan, on aggregates, the provisions for loan losses or credit losses-- that certainly come up a few times at this point during the early moments of the earnings season, especially as we focus in on banks, big banks last week, regional banks this week. How does that have perhaps a more profound impact on some of the regional banks, though?
NATHAN STOVALL: Sure, I mean that's the area that is really in focus. The Street has been very concerned about their exposure to commercial real estate, and in particular-- but thus far, we really haven't seen anything that would look any different than call it normalization and credit trends.
Because remember, the group's really been over earning on credit. And what I mean by that is they've had very little loss content and formal charge-offs activity, and provisions have been historically low. And you're seeing both come up, but come off of such low basis.
And we haven't really heard anybody say anything that is really worrying. They're still in that normalization camp, moving back towards call it pre-pandemic levels, the consumer remains resilient. And the CRE piece is definitely one that we're watching really closely, but it's going to take a while. It's not going to be one quarter or even two quarters, it's going to be sort of a multi-year shift. And I think the Street still hasn't quite fully appreciated that, particularly when you look at the regionals.
The other thing I would say, too, when you look at their exposures, you need to have a little bit more nuance in assuming that everything is an office skyscraper. They might be some specific different subcategories within that asset class that will perform way differently. And you even have some stuff that might even be office loans that have regional holds that has nothing to do about a return to work conversation, if you're talking about local medical, like a dentist's office or even a doctor's office.