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Deposit costs at America’s biggest banks rose more than interest income last quarter for the first time since the Federal Reserve began raising rates two years ago, as savers demand lenders share profits.
Wells Fargo paid nearly $594 million more in fees to depositors in the first quarter of this year than in the previous three months. That’s far more than the $1 million the bank earned in additional interest on its loans and investments during the same period.
JPMorgan Chase and Citi also paid out more to depositors than they received in additional interest last quarter, about $350 million each. In the previous quarter, the two banks earned $2.3 billion in extra interest than what they were paying depositors.
At Bank of America, the increase in deposit costs equaled two-thirds of the new interest received during the quarter.
“Regardless of what happens to rates, deposit costs are going to continue to rise,” said Greg Hertrich, head of U.S. deposit strategies at Nomura.
“Traditionally, the way it worked was that your deposit base generally came from the same metropolitan area. But in the current environment, the vast majority of deposit rates are announced to a much wider audience than before.”
After two years of increases, the extra amount banks must pay to retain depositors has started to slow. Filing costs rose an average of 5 percent in the first three months of the year, compared to the previous quarter, at BofA, Citi, JPMorgan and Wells Fargo, to $1.5 billion. This is down from a 13 percent increase in the fourth quarter and a 38 percent increase a year ago.
The problem is that while rates appear to be at an all-time high, the interest payments that banks receive on their loans and investments are almost at a standstill. During the first three months of this year, interest income at these four banks increased by an average of less than half a percent, an increase of about $500 million from the previous quarter.
“Demand for loans has not rebounded to the level hoped for,” Hertrich said.
Banks still keep the vast majority of the interest they earn, paying out on average only 26 percent of that income to depositors in their final quarter. On average, the country’s largest banks pay an average interest rate of 2.9 percent to depositors, up from 1.8 percent a year ago, but still well below the official short-term interest rate. Fed term of 5.5 percent.
JPMorgan executives said the bank’s interest income fell last quarter, the first time in nearly three years, largely due to growing pressure to pay depositors more.
“As we’ve been saying for some time, the migration of checking and savings to CDs is sort of the dominant trend,” Jeremy Barnum, JPMorgan’s chief financial officer, told analysts on the company’s conference call. bank’s first quarter results. “We continue to capture this moving money at a very high rate. »
