Why big banks keep raking in deposits

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Bank of America and other large banks continue to rake in deposits even though interest rates are falling and customers are earning less on their money.

The deposit growth likely stems from a combination of consumers looking for safe havens amid growing concerns about the economy and the largest banks using their heft to take market share from smaller competitors, according to analysts and shareholders.

The upshot is that consumers are pouring their money into banks, particularly large banks.

At Bank of America, deposits rose 3.5% to $1.4 trillion in the third quarter from the same period a year earlier. Most of that growth has come from consumer checking accounts, Chairman and CEO Brian Moynihan said during a Wednesday conference call.

Moynihan said that deposit growth has the potential to accelerate to a yearly rate of 4% or 5%, as the bank aggressively markets checking and savings accounts to both retail consumers and wealth management customers.

BofA is also starting to reap the benefits of its expansion into new markets — it’s opening hundreds of branches in cities where it previously had no retail presence over the next several years — and its hefty investments in digital banking technology.

“I'd say you should expect us to continue to grow at the rate we're growing now or faster,” Moynihan said during the call.

JPMorgan Chase, Citigroup, U.S. Bancorp and PNC Financial Services Group all reported solid deposit growth in the third quarter.

Citigroup posted the fastest growth, as it accelerated deposit gathering by marketing checking and savings deposits to its existing credit card customers. Citi’s deposits rose 8.2% year over year to $1.1 trillion.

Lisa Kwasnowski, an analyst at the debt-rating agency DBRS, said some consumers may be worried that the economy is heading into a recession and therefore would rather park their money in banks than invest in stocks or other risky securities.

“There are concerns about cracks in the economy and maybe people are being more thoughtful about where they are placing their money,” she said.

In September, U.S. consumer confidence posted its largest drop of the year, as the Conference Board’s index fell to a three-month low of 125.1; the forecast was 133 in a Bloomberg survey of economists. In the report, the share of respondents who said that jobs are plentiful dropped to a three-month low.

On Wednesday, the Commerce Department reported that U.S. retail sales unexpectedly declined 0.3% in September, its first drop in seven months. The median estimate of economists in a Bloomberg survey predicted a 0.3% gain.

While some consumers may be looking to avoid stock market volatility, the largest banks may get some deposit growth by stealing market share from rivals, especially smaller banks, said Marc Pfeffer, the chief investment officer at CLS Investments, an asset manager in Omaha, Neb., that invests in banks of all sizes.

“People want to be loyal to their local banks, but they also want to be with a bank that has national scale,” Pfeffer said.

The data backs up Pfeffer’s argument.

In the 12-month period that ended June 30, deposits at banks with at least $250 billion of assets rose by 4.4%, to $6.9 trillion, according to the FDIC’s yearly Summary of Deposits report. At banks with less than $100 million in assets, deposits fell by 12.3%, to $53.9 billion.

Pfeffer suggested that some large banks may also be taking market share from Wells Fargo, which has been dogged by a number of scandals in recent years. Though its total deposits climbed a respectable 3.3% in the third quarter to $1.3 trillion, the pace of growth was the slowest among the six largest U.S. retail banks.

A falling rate environment can help banks collect more deposits, as consumers won’t give up as much yield when switching from an investment security to a bank deposit, said Eric Hagemann, an analyst at Pzena Investment Management, which owns about 2.5 million Bank of America shares.

Jennifer Piepszak, the chief financial officer at JPMorgan Chase, echoed those comments on the company’s earnings call Tuesday.

“In a declining rate environment, the higher-yielding alternatives for consumers are less attractive … so we could see healthy growth in the deposit base,” she said.

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Deposits Consumer banking Branch banking Interest rates Brian Moynihan Jennifer Piepszak Bank of America JPMorgan Chase Citigroup Wells Fargo
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