Big Banks’ Earnings Have Some Bad News for Smaller Banks
A surge of profits at some of the nation’s largest banks might make people forget that there was a banking crisis earlier this year. But just offstage, reminders are lurking—and they might grab the spotlight as regional banks begin to report this week. JPMorgan Chase and Wells Fargo on Friday reported year-over-year net income growth of 67% and 57%, respectively.
That is hardly what anyone would call troubling. Yet the KBW Nasdaq Bank Index dropped more than 2% on the day, and shares of trust bank State Street, which also reported Friday, fell 12%. What were investors focusing on? It was likely the numbers around deposits.
Deposit costs jumped sharply at all four banks that reported on Friday, which also included Citigroup. On average, the rates on interest-bearing deposits were around a fifth higher than they were in the first quarter. That was a slower pace of increase than from the fourth to the first quarter.
However, base interest rates set by the Federal Reserve didn’t rise as much during the second quarter—so the pace of deposit-rate increases accelerated relative to the increase in the average federal-funds rate. No banks are safe from the pressure, it appears. In response to a question on Friday from analysts about customer demands for higher rates, JPMorgan Chief Executive Jamie Dimon warned everyone to anticipate more on this front.
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