US bank profits shrink on higher deposit costs, one-time charges
SEVERAL US banks reported a plunge in fourth-quarter profits on Thursday (Jan 18), hurt by a drop in interest income and charges tied to replenishing a deposit insurance fund.
Higher payouts on deposits to retain customers from chasing high-yielding alternatives have resulted in an industry-wide contraction in net interest margins for the banks that had until recently benefited from the US Federal Reserve’s rate hikes.
Potential Fed rate cuts this year will likely further dent margins this year, some banks have warned.
Meanwhile, most US banks are also paying regulator Federal Deposit Insurance Corporation (FDIC) a fee to refill its insurance fund, used to safeguard customer deposits in case of bank failures, after it was drained of roughly US$16 billion following the collapse of two mid-sized lenders in 2023.
Deposit cost concerns stand front and centre
Investors are closely monitoring deposit cost trends in bank earnings reports this quarter. Reuters reported earlier this month that analysts fear 2024 earnings per share at 11 US regional banks will drop from a year earlier, mostly due to increased deposit costs.
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KeyCorp posted a near 92 per cent plunge in quarterly profit and forecast a 2 to 5 per cent drop in its net interest income (NII) in 2024. Shares of the bank fell 2.6 per cent.
Raymond James analyst David Long said KeyCorp’s stock could be under pressure as the bank’s earnings per share get squeezed.
One-time charges of more than US$6 billion and weaker NII led to Truist swinging to a loss from a year-ago profit.
“Truist did report goodwill impairment, but fundamentally we view this as just noise since (there is) no impact to regulatory capital or return on tangible common equity,” Citi analyst Keith Horowitz said. The bank’s stock climbed 2 per cent.
M&T Bank’s profit plummeted 37 per cent due to higher deposit costs and the special assessment fee, while asset and wealth manager Northern Trust’s profit fell 27 per cent.
Digital banking and payments services firm Discover Financial reported a 62 per cent drop in profit on Wednesday, due to bigger provisions for potentially sour loans.
Its shares fell 7 per cent in morning trading, hitting their lowest in more than a month. They also dragged down peers Capital One Financial and Synchrony Financial, which fell 0.6 per cent and 1.3 per cent, respectively. REUTERS
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