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Regions Financial well positioned for potential economic slowdown

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Regions Financial well positioned for potential economic slowdown

Although the U.S. economy remains sound, Regions Financial Corp. has prepared for a slowdown over the past two years and is well positioned if the economy sours, CEO and President John Turner said Sept. 10.

Regions has de-risked its portfolio by exiting some lines of business, such as indirect auto and medical office buildings, and reducing its reliance on its real estate business. It also has continued with its "Simplify and Grow" initiative, which includes branch closings and automation efforts, that was partly aimed at helping Regions develop a more efficient business model "in anticipation of a time when we weren't going to benefit from rising rates" and continued economic growth, John Turner said.

"We think we're well positioned," the CEO said at the Barclays Global Financial Services Conference, according to a transcript.

Regions also started a hedging program two years ago to help the company protect against the potential of the Federal Reserve lowering short-term interest rates. The Fed cut rates in July for the first time in more than a decade and is expected to do so again Sept. 18, with Fed officials continuing to worry about slower global growth and trade uncertainty denting the U.S. economy further.

David Turner, Regions' CFO, said the bank had anticipated a slowing economy would prompt the Fed to ease its monetary policy, though Regions expected the pivot to happen in 2020 instead of 2019. As a result, Regions is a "little bit more exposed" in 2019 but well protected against interest rate changes in 2020, David Turner said.

In the meantime, Regions can continue keeping a lid on deposit costs, David Turner said. Regions' deposit costs peaked in May and are expected to continue on a downward trend, according to a slideshow Regions prepared for the conference.

That will help keep Regions' net interest margin relatively stable, executives said. Regions' NIM was 3.45% in the second quarter and should come in closer to 3.40% in the fourth quarter before expanding a bit in 2020 as the interest-rate hedges begin, according to the slideshow.