Banks are just a few weeks away from the end of the first quarter, and already the answers to some questions from early in the year are coming into focus while other issues linger and new ones pop up.

Deposit prices are starting to rise, deposit growth is slowing, business lending has yet to catch fire after the tax cut, and talk of a trade war is making bigger banks nervous. Those were some of the takeaways from investor presentations Tuesday by bank executives.


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So, sounds like a choppy quarter in the making, right? Not exactly.

There are silver linings to some of these problems, the executives said. The slowing deposit growth could mean good things later for loan demand, which is already brightening in certain commercial and consumer niches.

Here are some of the key takeaways about the good, the bad and the ugly from the front lines of a quarter in the making.

Banks are under pressure to raise deposit prices.

As the Federal Reserve has begun raising interest rates, banks have responded by paying more to depositors. The rate increases were slow initially, but comments from bank executives on Tuesday suggest that the trend is intensifying.

The competitive pressure is not only the result of the rate hikes; it also stems from the Fed’s gradual unwinding of its massive balance sheet, which left the industry awash in cheap deposits during the post-crisis era.

A third explanation for rising prices is the recent slowdown in deposit growth. Industrywide, deposits grew by 3.9% between the fourth quarter of last year and the same period a year earlier, according to the Federal Deposit Insurance Corp. That was down from 5.8% growth a year earlier.

U.S. Bank Chief Financial Officer Terry Dolan indicated the slowdown in deposit growth is a positive sign, even though it puts pressure on banks to pay more to depositors. Weakening demand indicates that companies are investing cash in their businesses, and will eventually start borrowing more.

“So I don’t think that’s necessarily unusual, but deposits are going to become more competitive,” Dolan said at the Royal Bank of Canada Financial Institutions Conference in New York.

RBC CEO Dave McKay said that the Toronto bank is also seeing upward pressure on deposit pricing in the U.S. market.

He said that U.S. banks had assumed they would be able to pass along a relatively small share of the interest rate increases along to their depositors, but that the unwinding of the Fed’s balance sheet has forced them to revise that assumption.

Commercial loan demand has not accelerated, but there are some stronger pockets.

Executive commentary at two conferences on Tuesday seemed to suggest a mixed outlook on lending. Though tax reform was touted for its potential to stimulate business investment, bankers said that it still could be a while before that translates into significant loan demand, at least from larger corporate clients.

“Tax reform happened fairly quickly ... in a matter of weeks, not months,” Citigroup’s CFO John Gerspach said at the RBC conference. “So I don't think it's unusual for companies to take some period of time in order to make some very big decisions as to where they want to invest, how they want to invest. So I do think you're going to see a lot of that over the next six months."

Small-business and consumer lending, on the other hand, emerged as potential bright spots.

For the $462 billion-asset U.S. Bancorp, business optimism had translated into increased investment activity for the small-business set, Dolan said.

Yet he seemed to share Gerspach’s assessment of larger multinational and corporate clients, saying that “they have a lot of cash, they're bringing cash back, they have to go through a process of realigning their balance sheet. So, we're still seeing a pretty significant amount of paydowns and payoffs as they go through some of that. So, I think we're going to kind of see a little bit of a different story on both sides.”

Elsewhere, at the Raymond James Institutional Investors Conference in Orlando, Fla., SunTrust Banks talked about consumer lending, particularly unsecured digital loans, as an area that the $206 billion-asset company hopes to expand. CFO Aleem Gillani highlighted the Atlanta company’s partnerships with LightStream and GreenSky, which provide online loans and point-of-sale loans, respectively.

“Over time, point-of-sale financing will become increasingly relevant to our clients, and our reputation in this space has allowed us the opportunity to evaluate additional partnerships that can create future growth,” he said.

Gillani also said the company hopes to increase its credit card lending and that SunTrust’s credit card concentration is “significantly below” that of its peers.

He said that SunTrust’s consumer lending businesses were “growing faster than other parts of our loan portfolio,” but that those portfolios, combined, still represented only about 5% of the company’s total loan portfolio.

“Over time, we'd like to see them comprise a more meaningful portion of the portfolio, which will also help to support our overall balance sheet optimization efforts and, of course, returns,” he said.

The largest banks are just beginning to assess the impact of President Trump’s tariff plan.

Citi is concerned how the situation may progress with the Trump administration’s decision to impose tariffs on some current trading partners, Gerspach said.

Trump’s recent decision to impose new tariffs on steel and aluminum has rocked the markets and caused a potential rift between the president and Congress. Because the tariffs have raised the specter of a trade war, Treasury Secretary Steven Mnuchin on Tuesday tried to downplay that potential outcome, Bloomberg News reported.

Trump has offered the potential for backing down on tariffs if Canada and Mexico agree to a new version of the North American Free Trade Agreement. Any potential threat to NAFTA would not be good for Citi, Gerspach said.

“We certainly hope that the people stay at the table,” Gerspach said. “There are constant threats about the U.S. saying it’s going to withdraw from NAFTA. There’s a lot of good [in that agreement], and we would certainly hope that people stay at the table and work it through.”

Citi does business in Europe, Latin America and Asia, as well as Canada and Mexico, so it potentially has far greater exposure to the effects of a trade war than other banks.

“It has the real possibility of reducing foreign investment into Mexico … and that could certainly have a negative impact on Mexico’s GDP,” he said.

A trade war or a weakened NAFTA could also raise the cost of business for U.S.-based companies that are Citi clients, Gerspach said.

“To the extent that, you know, the U.S. would adopt a much more protectionist view, that's going to serve to add operational costs to U.S. manufacturing,” Gerspach said.

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Andy Peters

Andy Peters

Andy Peters writes about regional banks, consumer finance and debt collections for American Banker.
Kevin Wack

Kevin Wack

Kevin Wack is a California-based reporter for American Banker who covers the U.S. consumer finance industry.