J.P. Morgan to Increase Deposit Rates for Some Big Clients
December 28 2015 - 3:00PM
Dow Jones News
Some bank customers won't have to wait much longer to reap
benefits from the Federal Reserve's decision to raise interest
rates.
J.P. Morgan Chase & Co. will begin raising deposit rates for
some of its biggest clients in January, according to a person
familiar with the matter.
The move by J.P. Morgan, the largest U.S. bank by assets, makes
it an early mover among its American rivals.
Hours after the Fed's decision earlier this month, the largest
U.S. banks announced increases in the prime rate, a reference rate
for a variety of loans including credit-card debt. But most banks
didn't make any corresponding hikes to the interest they pay to
depositors. The moves signaled that at least for now most banks
hoped to pocket the gains from the Fed's move.
Net interest margins, or the difference between what banks pay
for deposits and what they earn on loans and investments, have been
squeezed in recent years by low interest rates.
"They're so compressed there's no question they'll keep the
majority if not all of [the benefits of the first rate hike]," said
Lance Pan, director of research at Capital Advisors Group Inc., an
investment advisory firm.
J.P. Morgan's deposit-rate increase will affect most
institutional clients and the size of the increases will vary, the
person said. They will apply to "operating" deposits, which are
deemed stickier and less likely to be withdrawn in a crisis.
Representatives for Bank of America Corp., Wells Fargo & Co.
and Citigroup Inc. said there has been no change to deposit rates
at the banks. Representatives for Goldman Sachs Group Inc. and
Morgan Stanley had no immediate comment.
The Fed's decision this month to lift its benchmark interest
rate by a quarter percentage point marked the end of an era that
had pinched banks' lending profits. Lenders anticipate that higher
rates will provide an immediate boost to lending income, while also
possibly helping loan demand.
In a rising rate environment, deposit-rate increases typically
lag behind increases in loan rates, which is why banks can make
more money when rates go up. Vining Sparks analyst Marty Mosby
estimates that large U.S. banks will raise rates on
interest-bearing deposits by less than 0.1 percentage point in the
wake of the Fed's move. Meanwhile, the prime lending rate quickly
rose to 3.5% from 3.25% after the Fed announcement.
Some uncertainty remains as to how exactly the rate hike will
play out in deposit rates this time around, given new regulations
that make certain deposits more valuable than others.
Operating deposits are more attractive to banks than so-called
excess or "nonoperational" deposits, which are considered riskier.
New regulations require that banks hold bigger capital cushions for
deposits considered riskier such as noninsured balances held by
hedge funds.
Banks in the U.S. have moved aggressively in the past two years
to reduce those nonoperational deposits. State Street Corp. earlier
this year took the unusual step of charging some clients for large
deposits and J.P. Morgan cut that type of deposit by more than $150
billion in 2015.
While most U.S. banks are holding firm on deposit rates, some
large Canadian banks have in recent weeks increased deposit rates
on U.S. dollar-denominated accounts in Canada.
Toronto-Dominion Bank, Bank of Nova Scotia and Canadian Imperial
Bank of Commerce are among the Canadian banks that have increased
deposit rates for certain U.S. dollar-denominated corporate
accounts, according to representatives for the banks.
Representatives for Royal Bank of Canada and Bank of Montreal
declined to comment.
Victor Dodig, chief executive of CIBC, Canada's fifth-largest
bank, has spoken publicly about the bank's desire to expand in the
U.S. CIBC's business banking clients, which deploy capital in the
U.S., often park some deposits with rivals including regional and
global U.S. banks.
"There's a very real risk over time that we lose those clients
if we can't back them across the border," said Mr. Dodig during
CIBC's investor day presentation on Oct. 7.
Canadian lenders are increasingly tapping the U.S. market for
growth. Low interest rates and oil prices coupled with a sluggish
domestic economy are clouding the outlook for Canada's banks, which
generate the bulk of their profits in their home market.
As a result, Canada's biggest banks are seizing more growth
opportunities south of the border, including in corporate banking,
private banking and wealth management.
Write to Sarah Krouse at sarah.krouse@wsj.com, Rita Trichur at
rita.trichur@wsj.com and Rachel Louise Ensign at
rachel.ensign@wsj.com
(END) Dow Jones Newswires
December 28, 2015 14:45 ET (19:45 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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