Deposits Are Stabilizing, But Doubts Linger

U.S. stocks rallied this week, thanks in part to solid earnings reports from several larger regional banks, which showed deposits to be stabilizing after the stress the industry experienced earlier in the year.

But, because banks now have to offer higher interest rates to attract and keep depositors, some of these successes do come with an asterisk. As regional bank earnings reports continued to roll in during the week, several fell short of Wall Street estimates.

Curb your enthusiasm? The Wall Street Journal reports that “no banks are safe from the pressure,” noting that JPMorgan chief Jamie Dimon was lamenting the lack of “pricing power” in the industry. Autonomous Research analyst Brian Foran said Dimon’s comments were “a definite curb your enthusiasm moment.”

The WSJ also pointed to a 7% drop in so called “golden,” or non-interest-bearing, accounts, saying that such a dip “increases banks’ deposit costs even beyond what their average deposit rates indicate.” While big banks have ways to offset such funding cost increases, regional banks have fewer options in their tool chests.

Better than expected. Still, some analysts saw glimmers of hope in this week’s reports from regionals. “The expectation going into the quarter was very low and results have not been as bad,” KBW’s Christopher McGratty said. “The banks have shown that they are in a position to get back the deposits but going ahead the focus will also be on seeing at what costs are they able to accumulate [them].”