American Express Co. and Discover Financial Services are among financial firms more at risk of losing customer deposits than traditional banks as interest rates rise, according to Fitch Ratings.
Lenders without branch networks drew deposits in recent years with rates higher than their competitors, and the new customers may lack the loyalty to stay when rates climb, Fitch said today in a report. The impact on the companies' credit grades probably won't be material, Fitch said.
Deposit-taking institutions are bracing for higher interest rates and seeking ways to retain deposits as the Federal Reserve slows its monthly bond buying and the U.S. economy improves. Some lenders could boost deposit rates or add withdrawal penalties to dissuade customers from leaving, Fitch said.
The firms may see deposits leaving to a greater degree "relative to traditional banks given that their deposit platforms are relatively new, tend to lack deep, long-term customer relationships and are predominantly centered on gathering deposits online," Fitch said.
The report also examined Ally Financial Inc., CIT Group Inc., SLM Corp. and General Electric Co.'s finance arm. Pressures probably will vary among the companies depending on their mix of deposits, the strength of customer relationships and actions to mitigate outflows, Fitch said.
Lenders will be able to forestall some withdrawals by offering higher payouts, and profit margins will rise with interest rates, allowing companies to offset the higher costs of deposits, Fitch said.
