JPMorgan, Wells Fargo expect deposits to extend Q2 declines

First Republic Bank

14/07/2023 17:53

By Saeed Azhar and Nupur Anand
       NEW YORK, July 14 (Reuters) - Deposits at U.S. banking
giants including JPMorgan  JPM.N  and Wells Fargo  WFC.N  are
expected to extend their second-quarter decline as consumers
keep spending and moving their money in search of higher yields.
    "We do expect deposits to come down," Wells Fargo chief
financial officer Mike Santomassimo told reporters on an
earnings conference call on Friday.
    The lender's average deposits fell 7% to $1.3 trillion at
the end of June, "reflecting consumer deposit outflows on
consumer spending, as well as customer migration to higher
yielding alternatives," it reported in second-quarter results. 
    At JPMorgan, the nation's largest bank, average deposits
fell 6% in the second quarter to $2.4 trillion from a year
earlier.
    The bank expects a modest decline in deposits across major
businesses, chief financial officer Jeremy Barnum told analysts
during the bank's second-quarter earnings call.
    JPMorgan benefited from $68 billon of deposits from First
Republic Bank, which it acquired in May in a government auction.
    JPMorgan said that any revision in deposit rates would be
driven by competition and consumer feedback.
    "There is no circumstance that we've ever seen in the
history of banking where rates didn't get to a certain point
that you had to have competing products," JPMorgan CEO Jamie
Dimon said.  
    "And we're going to have to compete for that."
    On the call, JPMorgan also said the downtrend in deposits
was a result of the Fed's quantitative tightening (QT), which is
shrinking the central bank's balance sheet after it expanded
with stimulus prompted by the pandemic.
    There is pressure on deposits arising from the Fed's effort
to reduce its balance sheet which forces banks to limit reserves
and deposits in their system.
    Citigroup's  C.N  deposits were broadly steady at $1.3
trillion in the second quarter from a year earlier, as it
benefited from an increase in institutional deposits, which
offset a slide from its securities services business.  
    Deposits at U.S. banks have stabilized after a tumultuous
period in March, when two of the largest bank failures since the
2008 financial crisis spurred consumers to seek safety by moving
their money to large institutions.
    Some depositors have also moved cash out of savings accounts
into higher-yielding certificates of deposits.
    In its effort to reduce demand and curb inflation, the
Federal Reserve has raised interest rates aggressively since
last year. 
    Preliminary data from the Fed show that while banks both
large and small continued to shed deposits in the second
quarter, they did so at a notably slower rate than in the first
quarter.
    The central bank reported total bank deposits fell 1.2% to
$17.26 trillion through the week ended June 28 versus $17.47
trillion at the end of March.
    For large banks, deposits fell 1.3% to $10.80 trillion from
$10.95 trillion during same period, the Fed data showed. And for
small banks, deposits fell 0.9% to $5.18 trillion from $5.23
trillion.
    The declines were notably smaller than the first-quarter
drops of 2.4% for large banks and 3.3% for small banks.
    While higher rates are expected to boost earnings for larger
banks, those gains will be tempered by moderating appetite for
loans and higher deposit costs, Kenneth Leon, director of equity
research at CFRA, said in a note. 

 (Reporting by Saeed Azhar, Dan Burns, Nupur Anand and Tatiana
Bautzer; Editing by Lananh Nguyen and Mark Potter)
 ((Saeed.Azhar@thomsonreuters.com; +1 347 908-6341; Reuters
Messaging: saeed.azhar.reuters.com@reuters.net))