Major US banks post solid third quarter loan growth, but see more competition for deposits

In the third quarter, prominent US banks experienced solid growth in both loans and deposits, yet they are facing heightened competition for customer funds due to an intensely competitive environment with high interest rates. JPMorgan Chase, Citigroup, and Wells Fargo all reported increased net interest incomes on Tuesday, defying the notion that rising bond yields and elevated borrowing costs would dampen loan demand and instigate a withdrawal of deposits.

The consumer remains a crucial driver of economic resilience, even as higher prices continue to dampen consumer sentiment, according to a Wells Fargo executive during a post-earnings call. Citigroup saw an 11% rise in average deposits and a 12% jump in average loans, while Wells Fargo recorded a 10.7% increase in average deposits and an 11% surge in average loans, primarily propelled by its consumer banking segment.

JPMorgan, the largest US lender, witnessed a 4% rise in average deposits and a 2% increase in loans compared to the previous year. Despite these positive metrics, banks are grappling with mounting funding pressures as US Treasury yields reached record highs during the third quarter, prompting customers to seek better returns elsewhere.

This has compelled lenders to raise deposit rates, squeezing their margins. Wells Fargo's deposit margin fell to 2.78% in the third quarter from 2.79% in the same period last year, while JPMorgan's net interest margin on a taxable basis slipped to 2.43% from 2.61% in the previous year. Analysts note that loan and deposit growth continue to be robust, but there are some concerns regarding deposits and their sustainability.

Bank of America is scheduled to release its third quarter earnings on Wednesday. So far, analysts have not identified any significant weaknesses in overall bank credit quality, suggesting that households have been managing their debt obligations effectively. The weakening labor market and rising living costs could put pressure on borrowers, especially if prolonged conflicts lead to increased prices for essential goods and diminish discretionary spending.

Despite these concerns, internal data indicates that consumers are not shifting away from discretionary items, even as US consumer prices rose by 3.4% over the past year, according to JPMorgan CFO Jeremy Barnum during a post-earnings call. The Federal Reserve's recent rate hike has led major US banks to increase their prime lending rates, reflecting the current macroeconomic landscape.