US bank profits fall as competition for deposits erodes lending margins

 Several large U.S. regional banks reported lower profits on Wednesday, in a further sign that the income boost from interest rate hikes by the Federal Reserve is starting to wane.

Charles Schwab, Citizens Financial and US Bancorp said that, along with one-off charges, the rising cost of retaining customer deposits ate into fourth-quarter net interest income (NII), the difference between what banks earn from lending and pay on deposits.

Fed rate hikes last year aimed at taming inflation boosted many lenders' NII, a core business for most regional banks. But growing competition for deposits from the country's biggest banks is eating into their profits and in some cases subduing loan growth.

Big banks have benefited from an exodus of deposits from small institutions, which were seen as riskier, after Silicon Valley Bank and two other regional lenders collapsed last year.

Potential Fed rate cuts this year will likely further dent NII, some banks have warned.

Charles Schwab's quarterly profit fell 47%, partly due to a 30% drop in NII on higher deposit costs. Schwab paid an average of 1.37% on deposits, compared to 0.46% a year earlier, it said.

Citizens reported a 71% decline in profit, with NII down 12%. US Bancorp's profit fell 14% as NII dropped 4.2%. On Tuesday, PNC Financial, another big regional lender, said profits shrank, with NII contracting 8%.

Citizens warned that its NII this year could be 6% to 9% below the $6.24 billion it made in 2023. Shares of Charles Schwab dropped 1.3%, US Bancorp fell 1.7%, while Citizens was up 1.9%.

"For banks, loan demand would be fairly tepid through the first half of the year, and then start to pick up again in the second half," Citizens Financial CEO Bruce Van Saun told Reuters in an interview on Wednesday.

At 11 U.S. regional banks with assets of $50 billion to $100 billion, analysts expect earnings per share to drop from 2023 mostly due to increased deposit costs, according to LSEG estimates, Reuters previously reported.

https://finance.yahoo.com/news/us-bank-profits-fall-competition-181610881.html