Big Banks Weigh Better Rates for Depositors

America’s largest banks say their profits from high interest rates could soon take a hit.

As the Financial Times (FT) reported Saturday (Oct. 14), larger lenders are telling investors that they’ll eventually need to offer depositors higher rates, which would eat away at profits on the rates they’re charging for loans.

The report notes that Wells Fargo, JPMorgan Chase and Citigroup all reported year-over-year increases in their lending business last week, with JPMorgan and Wells Fargo both raising their outlooks for the year in terms of lending income.

“The markets have been expecting some dramatic squeeze on the cost of consumer deposits [for banks] from the rate movement,” Chris Kotowski, banking analyst at Oppenheimer, told the FT. “And that just doesn’t seem to be happening.”

As the FT points out, largest banks enjoy the perception of safety given their size, and also have felt less pressure to train customers after taking in tens of billions of dollars of deposits during the COVID pandemic. 

Still, JPMorgan’s chief executive Jamie Dimon said that he disagreed with some of his top executives — finance chief Jeremy Barnum, and co-CEOs of consumer and community banking Jennifer Piepszak and Marianne Lake — over when competitive pressures may lead the bank to offer higher rates to depositors.

“We have a big debate inside this company. I personally think it will happen a little bit sooner than Jenn and Marianne and Jeremy,” Dimon told reporters on a conference call.

As PYMNTS wrote last week, Barnum was asked during a conference call with analysts about deposit trends, and noted that there’s been “upward pressure” on deposit rates due to the “competitive market environment.”

As for credit quality, he told analysts, “We continue to see the normalization story ‘play out’ with the consumer, more or less exactly as expected.” 

Loan growth has been robust on credit cards (a 16% increase), according to bank executives, though they forecast some normalization of those levels, too, with home lending expected to be constrained by rates and market conditions.

Meanwhile, Wells Fargo Chief Financial Officer Michael Santomassimo said his bank has been “pleasantly surprised” that competitive pressure to hike interest rates for deposits had not progressed as quickly as expected but cautioned that “at some point, it will.”

“There’s still a lot of uncertainty out there in terms of how the path of both the deposits and pricing will shape up,” Santomassimo told analysts.