Citi's high deposit betas to squeeze interest margins - Moody's
Reuters
Published Feb 08, 2023 09:34AM ET
By Mehnaz Yasmin
(Reuters) - Citigroup Inc (NYSE:C) may see more net interest margin (NIM) pressure than the other four big U.S. banks this year due to its high deposit betas, or the percentage of changes in interest rates that banks pass on to consumers, a Moody's (NYSE:MCO) report showed.
That would make it harder for Citi to catch up with rivals on profitability as a higher deposit rate increases a bank's interest expense.
"Over the course of this Fed tightening cycle, we calculate that Citi has had the highest deposit beta, and the gap in its deposit beta relative to peers widened even further in the fourth quarter of 2022," analysts at Moody's Investors Service wrote in a report on Tuesday.
Wall Street banks have enjoyed healthy NIMs so far as the Federal Reserve pumped up interest rates to rein in inflation, but deposit betas have also leapt and are now threatening to erode margin expansions.
Also, the Fed's quantitative tightening will drain out deposits from the U.S. banking system, including from the four large banks - Citi, Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo (NYSE:WFC) & Co - the report added.
Citigroup's NIM expanded 41 bps, the lowest among the four, to 2.39% in the fourth quarter ended Dec. 31 from a year ago, according to data from Refinitiv.
In a further sign of NIM pressure ahead, Citigroup's cost of interest-bearing deposits swelled to 2.10% from 0.28% during the period, a company presentation showed.
While Wall Street analysts remain concerned about the bank's fundamentals, shares have gained 13% so far this year after shedding 25% in 2022, with a key technical indicator inching closer to a potential bullish signal.
Get The News You Want
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.