US banks see mar­gins widen by de­posits surg­ing

La­hore, Is­lam­abad, Karachi Thurs­day, De­cem­ber 02, 2010, Zul Haj 25, 1431 http://Pak­

The Pak Banker - - Front Page -

NEW YORK: Profit mar­gins at U.S. banks may get a boost from in­creas­ing de­posits as cus­tomers show a pref­er­ence for im­me­di­ate ac­cess to their money and less ap­petite for risk with in­ter­est rates at a record low and the econ­omy still seek­ing a bounce from re­ces­sion.

Com­mer­cial banks in the U.S. added $88.9 bil­lion of so­called core de­posits in the third quar­ter, bring­ing the to­tal to $6 tril­lion, the most since at least 1992, ac­cord­ing to the Fed­eral De­posit In­surance Corp. Wells Fargo & Co., the fourth-largest lender by de­posits and fifthranked U.S. Ban­corp have said they're com­pet­ing for such funds, which in­clude check­ing and sav­ings ac­counts and time de­posits of less than $100,000.

Banks are re­ly­ing more on de­posits for fund­ing af­ter a freeze in credit mar­kets sparked the fi­nan­cial cri­sis and led to the bank­ruptcy of Lehman Broth­ers Hold­ings Inc. in Septem­ber 2008. The in­dus­try must shift from rais­ing funds in debt and se­cu­ri­ti­za­tion mar­kets to in­creas­ing core de­posits, which pay lit­tle or no in­ter­est, an­a­lysts say. The av­er­age rate of 0.80 per­cent on bank de­posits is the low­est since at least 2000, ac­cord­ing to Mar­ket Rates In­sight in San Anselmo, Cal­i­for­nia. "Other sources of fund­ing are dry­ing up," said Christo­pher Whalen, a for­mer Fed­eral Re­serve an­a­lyst and co­founder of In­sti­tu­tional Risk An­a­lyt­ics in Tor­rance, Cal­i­for­nia. "The banks that have sta­ble fund­ing will in­herit the earth." Banks con­sider core de­posits more de­pend­able in times of stress since cus­tomers with check­ing and sav­ings ac­counts are more likely to keep their money in the bank than bond in­vestors or len­ders. Lehman and busi­ness lender CIT Group Inc., fi­nan­cial com­pa­nies more re­liant on credit mar­kets, filed for bank­ruptcy when their tra­di­tional sources of fund­ing van­ished.

Bor­row­ing by U.S. com­mer­cial banks fell 17 per­cent since July of last year, while de­posits, ex­clud­ing large time de­posits, in­creased 9 per­cent in the same pe­riod, ac­cord­ing to the Fed. About two-thirds of the core de­posits added by banks in the third quar­ter, or $59.4 bil­lion, were de­posits that don't pay in­ter­est, ac­cord­ing to the FDIC.

Lever­age, the ra­tio of as­sets to to­tal eq­uity, fell in the sec­ond quar­ter to 8.8, the low­est since 1988, for banks with more than $20 bil­lion in as­sets, ac­cord­ing to fed­eral data. To­tal de­posits rose to 56.3 per­cent of as­sets at 22 of the 24 firms in the KBW Bank In­dex through Nov. 22, from 50.3 per­cent at the end of Septem­ber 2008, ac­cord­ing to Sid­dharth Jain, a bank an­a­lyst at KBW Inc. Cit­i­group Inc. and McLean, Vir­ginia-based Cap­i­tal One Fi­nan­cial Corp. don't pro­vide fig­ures. -PB News

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