Key facts
- Major US banks reported solid loan and deposit growth in the third quarter.
- Banks are paying a premium to retain customer funds due to high interest rates.
- JPMorgan Chase, Citigroup, and Wells Fargo posted higher net interest incomes.
- Citigroup's average deposits rose 11% and average loans jumped 12%.
- Wells Fargo's average deposits rose 10.7% and average loans jumped 11%.
- JPMorgan Chase's average deposits rose 4% and loans increased 2%.
Major US banks reported solid loan and deposit growth in the third quarter, but are facing increased competition for customer funds in a high-interest-rate environment. JPMorgan Chase, Citigroup, and Wells Fargo all posted higher net interest incomes, defying concerns about stifled loan demand and deposit flight.
Citigroup reported an 11% increase in average deposits and a 12% jump in average loans. Wells Fargo saw average deposits rise 10.7%, alongside an 11% jump in average loans, particularly in its consumer banking division. JPMorgan, the largest US lender, reported a 4% rise in average deposits and a 2% increase in loans compared to the previous year.
Despite these resilient metrics, banks are experiencing mounting funding pressures. As US Treasury yields reached record highs, customers sought better returns elsewhere, compelling lenders to raise deposit rates to prevent outflows, which in turn squeezed their profit margins. JPMorgan's deposit margin fell to 2.78% in the third quarter from 2.79% in the year-ago period, and Wells Fargo's net interest margin on a taxable basis slumped to 2.43% from 2.61%.
Analysts noted that while loan and deposit growth are continuing, there are concerns about the sustainability of deposit levels for other reporters. Bank of America is scheduled to report its third-quarter earnings on Wednesday.
Regarding credit quality, analysts indicated no significant cracks have appeared in overall bank credit, suggesting households are managing their debt obligations. However, a weakening labor market and rising living costs could pressure borrowers, especially if prolonged conflicts drive up prices for essential goods. JPMorgan CFO Jeremy Barnum stated that internal data does not show consumers shifting away from discretionary items, despite concerns that increased spending might be a reflection of inflation.
US consumer prices rose 3.4% in the 12 months through August, matching July's increase, with a key measure of underlying inflation posting its largest monthly gain in four months. Job growth in the US slowed more than expected in September, with sharp downward revisions to previous months' payrolls adding to economic outlook uncertainty and potential future loan demand.
Wells Fargo and Citigroup increased their provision for credit losses in the third quarter, a trend other banks may follow given the current macroeconomic landscape. In September, major US banks raised their prime lending rate following a Federal Reserve rate hike, increasing borrowing costs for consumers and businesses.