Recent data reveals significant declines in deposits at two major US banks.
Citigroup’s quarterly earnings report indicates a decrease in deposits from $1.3305 trillion in Q1 of 2023 to $1.3072 trillion in Q1 of this year, marking a notable decline of $23.3 billion over the course of 12 months. Similarly, Wells Fargo experienced a drop of $15.1 billion in deposits during the same period, with figures slipping from $1.3567 trillion in Q1 2023 to $1.3416 trillion in Q1 2024.
JPMorgan Chase reported a 7% decrease in deposits within its Consumer & Community Banking division for Q1, excluding data from its majority acquisition of First Republic Bank, which has faced financial challenges. However, the overall deposits for the firm remained steady, excluding First Republic’s contribution.
Looking ahead, JPMorgan’s chief financial officer, Jeremy Barnum, anticipates stagnant or slightly declining deposit balances as consumers seek higher returns on their cash investments. He remarked, “We expect deposit balances to be sort of flat to modestly down. So that’s a little bit of a headwind at the margin… in a world where we’ve got something like $900 billion of deposits paying effectively zero, relatively small changes in the product-level reprice can change the NII run rate by a lot.”
Meanwhile, CEO Jamie Dimon of JPMorgan Chase issued a cautionary note, suggesting that US banks could face another crisis if the Federal Reserve opts to raise interest rates. In his annual shareholder letter, Dimon highlighted the vulnerability of banks and leveraged US firms to persistent inflationary pressures, warning of dire consequences if the Fed tightens monetary policies further.
Dimon referenced JPMorgan’s acquisition of First Republic in May 2023, following the collapse of two other regional banks, Silicon Valley Bank (SVB) and Signature Bank. He explained that the banking crisis seemed to be waning with the resolution of these three troubled banks, contingent upon stable interest rates and the absence of a severe recession.
However, Dimon underscored the potential risks associated with a significant increase in long-term interest rates, particularly if accompanied by an economic downturn. He emphasized the detrimental impact such a scenario could have on financial assets, citing a 2-percentage-point rise in rates as equivalent to a 20% reduction in asset values. Additionally, Dimon highlighted the vulnerability of certain real estate assets, particularly office properties, to the effects of recession-induced higher vacancies and widened credit spreads.
