The highest bank deposit rates in fifteen years are now available.
In light of their impending second-quarter results, that is excellent news for savers but poor news for lenders.
US Banks Compete For Customers
After the upheaval that resulted in the failure of three significant regional institutions and led to outflows throughout the banking system, US banks have spent the last few months vying with one another to retain or attract depositors.
According to Bank rate, the result of this rush caused savings account rates to reach 5.05% at the end of the second quarter, which was the highest since February 2008.
The difficulty for US banks is that these increasing funding costs are eroding a crucial indicator of profitability known as net interest margin, which calculates the difference between what lenders earn on loans and what they spend for deposits.
For certain banks, particularly the mid-sized regional institutions that encountered difficulties in the spring, this will probably have a negative impact on results for the quarter while also lowering projections for their earnings for the remainder of the year.
According to Wells Fargo bank analyst Mike Mayo, the surprises this quarter will be for the banks that do not lower expectations.
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Pressure On Banks’ Deposits
Banks, continued Stephen Biggar of Argus Research, “have a deposit conundrum.”
Investors will be thinking about these pressures when they analyze the first batch of second quarter earnings from JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), and State Street (STT) beginning on Friday.
Next Tuesday, Morgan Stanley (MS), Goldman Sachs (GS), and Bank of America (BAC) all release earnings reports. In the upcoming weeks, a spate of additional regional banks will also report.
It is anticipated that some of the largest US banks will once more show their adaptability and diversity by proving they can maintain higher lending rates while relying on their extensive franchises to produce more revenue.
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