The benefits of high interest rates are fading for the nation’s biggest banks as depositors increasingly moved funds to higher-interest-bearing accounts last quarter.
Why it matters: A trio of banks turned in strong first quarter earnings Friday, but warned that the profit growth they’ve been enjoying from higher rates is starting to fade.
JPMorgan Chase saw NII decline 4% sequentially, with CEO Jamie Dimon saying it faces “deposit margin compression and lower deposit balances.”
Citigroup’s NII grew 1% year over year, although deposits declined 2%.
Customers are moving their funds from checking and savings accounts to higher-yielding CDs, JPMorgan CFO Jeremy Barnum said on a conference call.
The other side: Investment banking activity surged in the quarter, fueled mainly by underwriting fees as companies tapped debt and equity markets.
JPMorgan’s IB fees rose 21% year over year to $2 billion, boosted by underwriting.
Yes, but: Sustained higher interest rates could negatively impact that business as well in coming quarters.
As depositors shifted more money to higher-interest-bearing accounts during the most recent quarter, the nation’s largest banks are seeing a decline in the benefits of their high interest rates.
Why it matters: Three banks released impressive first-quarter results on Friday, but they cautioned that the rate-induced profit growth they had been enjoying was beginning to slow down.
According to Wells Fargo, “customer migration to higher yielding deposit products” was the reason behind an 8% decline in the company’s net interest income (NII) in the first quarter of this year when compared to the same period last year. “.
CEO Jamie Dimon of JPMorgan Chase reported that the bank is experiencing “deposit margin compression and lower deposit balances” after the bank’s net interest income (NII) fell by 4% annually. “.
Despite a 2% decline in deposits, Citigroup’s net interest income increased by 1% annually.
According to JPMorgan CFO Jeremy Barnum, customers are switching their money from checking and savings accounts to higher-yielding CDs during a conference call.
He went on to say that “ongoing migration” is probably going to continue. “Even if the current yield curve environment were to alter and significant cuts were to be reinstated, dot. Migration and yield-seeking activity should still be expected. “.”.
However, as businesses entered the debt and equity markets, underwriting fees drove a large portion of the quarter’s increase in investment banking activity.
Underwriting helped JPMorgan’s IB fees increase by 21% annually to $2 billion.
The amount at Citigroup increased by 32% to $977 million.
Furthermore, Wells Fargo revealed a 92% rise to $627 million.
Yes, but: That business may also suffer in the upcoming quarters from persistently higher interest rates.
