Regional Banks Surpass Expectations Amid Dealmaking Surge

U.S. regional banks reported higher-than-expected profits in the third quarter due to a surge in investment banking fees. This growth offsets higher deposit costs and highlights the relevance of investment banking among regional lenders. The outlook remains optimistic amid potential interest rate cuts.

In the third quarter, regional banks across the U.S. outperformed Wall Street predictions, primarily driven by an unexpected boost in investment banking fees. This surge in fees was propelled by revived dealmaking activities, which effectively counterbalanced the increased deposit costs.

The uptick in underwriting and M&A activity stemmed from a favorable stock market rally, coupled with economic resilience and the expectation of Federal Reserve interest rate cuts. David Russell from TradeStation highlighted the favorable probabilities for increased dealmaking as rates potentially decrease in the next year.

This trend underscores the growing significance of investment banking for regional banks, which traditionally have been the stronghold of Wall Street giants. Analysts emphasize that regional players like Huntington Bancshares and KeyCorp are positioned to benefit from continuing momentum in M&As and public offerings.

(With inputs from agencies.)