For the largest U.S. banks, deposit costs exceed interest income.
This is the first time this has happened since the Federal Reserve began raising rates two years ago, the Financial Times noted in a statement. report Sunday (April 28) on the phenomenon.
Among the lenders in question is Wells Fargowhich paid nearly $594 million in additional fees to depositors in the first three months of year than previously quarter, while earning an additional $1 million in interest on its loans and investments during the same period.
In the meantime, JPMorgan Chase And Citi both paid out more to depositors than they collected in additional interest last quarter – about $350 million each. In the most recent quarter, incremental interest income from both lenders exceeded payments to depositors by $2.3 billion.
Another lender, US Bancorp, announced earlier this month that it had seen a decline in its net interest income.
“Customers are I just optimizedjust look at their balance sheet, look at their balances – especially in this higher interest rate environment, and now that they know it's going to last longer period of time – they pay attention to it,” John SternUS Bancorp's chief financial officer, said during an earnings conference call.
The bank's net interest income for the quarter was $3.9 billion, down 3.1% for the fourth quarter of 2023 and 14% year-over-year.
“Regardless of how rates move, deposit costs will continue to rise. » Greg Hertrichhead of US deposit strategies at Nomuratold the FT.
“Traditionally, the way it worked was that your deposit base generally came from your same metropolitan area. But in the current environment, the vast majority of deposit rates are announced to a much wider audience than before.”
Meanwhile, PYMNTS last week examined the developments underway in financial services, as seen in banks' latest results.
For example, Bank of America recently reported “a a staggering 3.4 billion digital connectionswith digital sales representing half of its total sales,” this report said.
And Truist Financial last week, there were reports of 13% increase in digital transactions – totaling 76 million – while mobile app users grew 8% to 4.9 million year-on-year.
James ButlandVP of Payments and UK Managing Director at Mangopayspoke about this trend – and the obstacle it poses for banks – in a recent interview with PYMNTS.
“THE challenge facing a traditional bank, is that they are based on 150, 200 years of existing infrastructure and probably 60 years of existing technology. So banks have struggled to innovate quickly,” Butland said. But he added that “banks are starting to realize how quickly technology has changed the world.”