US bank profits fall as loan margins shrink amid competition for deposits – 01/17/2024 at 7:11 pm

Several major US regional banks reported profit declines on Wednesday, further signaling that higher interest rates are starting to dampen 2023 earnings growth.

Charles Schwab SCHW.N , Citizens Financial CFG.N and US Bancorp USB.N said that in addition to one-time charges, rising costs of maintaining customer deposits reduced fourth-quarter net interest income (NII), the difference between What banks earn on loans and what they pay on deposits.

Last year, the Federal Reserve’s rate hikes aimed at curbing inflation boosted net interest income for many lenders. But growing competition for deposits from the country’s biggest banks is hurting mid-sized banks’ profits and in some cases slowing loan growth.

After the collapse of Silicon Valley Bank and two other regional lenders last year, big banks have benefited from an exodus of deposits from smaller institutions, which are seen as risky.

Charles Schwab’s quarterly profit fell 47% (), partly due to a 30% drop in net interest margin due to an increase in the cost of deposits. Schwab paid an average of 1.37% on deposits, up from 0.46% a year ago.

Citizens reported a 71% drop in profit with a 12% drop in net interest margin. US Bancorp USB.N’s profit fell 14%, as the NII fell 4.2%. On Tuesday, PNC Financial PNC.N, another major regional bank, reported a profit decline with an 8% contraction in the NII.

Some banks said the outlook for NII is weak. For example, Citizens warned that its NII this year could be 6% to 9% lower than the $6.24 billion in 2023.

Among the 11 US regional banks with assets of $50 billion to $100 billion, analysts expect earnings per share to decline from 2023, mainly due to rising deposit costs, according to an estimate by LSEG, Reuters previously reported.

The KBW regional banks index .KRX was down 1% in line with the broader market.

Like the biggest US lenders reporting results on Friday, regional banks also recorded significant one-time charges to replenish Federal Deposit Insurance Corporation (FDIC) deposit insurance funds, which were hit by the regional banking crisis.

JPMorgan JPM.N , Bank of America BAC.N , and Citigroup CN reported weak profits on Friday, led by a decline in the NII.

Executives at these big banks were optimistic about the economy, noting that defaults on consumer loans had returned to pre-pandemic levels even as U.S. consumers remained resilient. But key questions loom in markets, including whether the economy will avoid a recession as inflation eases and whether the Fed is expected to cut interest rates this year.

“I’m a little bit more cautious,” JPMorgan Chief Executive Jamie Dimon said when asked about the U.S. economy on CNBC on Wednesday.

((Automatic translation by Reuters, please see disclaimer https://bit.ly/rtrsauto)) By Chibuike Oguh