Truist, Prosperity Likely to Face More Intense Deposit Competition, Morgan Stanley Says in Downgrade

Truist Financial (TFC) and Prosperity Bancshares (PB) are bracing for a more intense competition for deposits in the medium term, which could hurt their earnings, Morgan Stanley said in a note e-mailed Monday. Cyclical and secular factors are set to intensify deposit competition, potentially driving up deposit costs, the investment firm said. With or without a Federal Reserve interest rate hike later this year, deposit costs are likely to rise, according to the note. The brokerage lowered its 2027 per-share earnings outlook by about 1% for its super-regional and regional bank groups to reflect the risk. "Deposit competition is picking up more meaningfully in markets such as the Southeast, Texas, and the Midwest, where promo (certificate of deposit) rates are (10 to 45 basis points) higher than in the Northeast," Morgan Stanley said in a note to clients. "We expect this trend intensifies and we take both our deposit cost and expense estimates up for the group." Morgan Stanley downgraded its rating on the stocks of both Truist and Prosperity to equal-weight from overweight. Last month, Truist said Michael Lyons will become its chief executive, effective Sept. 1, replacing.