Apr 12, 2024 - Economy

Big banks warn of sting from higher rates

Illustration of a nervous piggy bank with a sweat drop on its face.

Illustration: Lindsey Bailey/Axios

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.

Between the lines: Wells Fargo said today its net interest income (NII) — the amount it earns from lending vs what it pays to depositors — fell 8% in the first quarter, compared with a year earlier, amid "customer migration to higher yielding deposit products."

  • 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.

  • "Ongoing migration" is likely to continue, he added. "Even if the current yield curve environment were to change and meaningful cuts were to get reintroduced ... we would still expect to see ongoing migration and yield-seeking behavior."

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.
  • At Citigroup, the figure jumped 32% to $977 million.
  • And Wells Fargo reported a 92% increase, to $627 million.

Yes, but: Sustained higher interest rates could negatively impact that business as well in coming quarters.

  • "Yields on corporate bonds are heading up again as investors have pared back expectations of rate cuts this year," the Wall Street Journal reported. "That means that fee income from debt issuance may head back down again."
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