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America’s largest banks continue to thrive. Despite high interest rates, businesses and consumers are still actively spending and borrowing.
JPMorgan Chase, Citigroup, and Wells Fargo have managed to increase loan charges while keeping deposit payouts at a slower pace. During the third quarter, these three banks collectively earned $49.6 billion in net interest income, a significant 29% increase from the previous year.
JPMorgan experienced substantial growth in its loan portfolio, offsetting weaknesses in trading and investment banking. Net income surged by over a third, while Wells saw a 60% jump. Citi reported more modest year-on-year growth of 2%.
This resilience among the major banks may spell trouble for smaller regional banks that have been losing customers and deposits to their larger counterparts. On Friday, the KBW regional bank index dropped nearly 1% while shares of JPMorgan, Wells, and Citi increased by 2.4-3.4%.
However, even within the big banks, there are signs that the surge in net interest income may not be sustainable. Consumers are becoming more cautious and funding costs are on the rise, which will limit net interest margin growth. JPMorgan’s interest expense increased by 170% compared to the previous year, resulting in a 1% decrease in overall deposits. Both Wells and Citi reported a 3% decline in deposits.
Out of the three, Citi appears to have less flexibility when it comes to funding costs, as only 15% of its US deposits are in non-interest-bearing accounts. These deposits, which are the most cost-effective source of funding for banks, decreased by 5% between the second and third quarters. Meanwhile, JPMorgan’s non-interest-bearing deposits only fell by 1% quarter on quarter and still accounted for approximately one-third of its total US deposits. The strong balance sheet and diversified business model of JPMorgan help explain why its stock continues to trade at a premium compared to its peers based on price to book value.
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