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US Banks Margin Squeezed
( From FRED, News-to-Use, Wall Street Journal, Equities.com, )
The US Banks are starting to be squeezed out by slowing loans demand ( on all side, either commercial and industrial loans and consumer loans ) and skyrockecting of deposits. Combined with already lean and mean banks that have mostly done their clean up process after the crisis, they will face tremendous pressure from continue net interest margin squeeze.
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The recent slowdown is especially disconcerting because demand for other types of loans is cooling, too. Consumer lending dipped in the first quarter as the recent surge in mortgage borrowing ebbed. As a result, total loans fell 0.6% in the first quarter at the biggest U.S. banks and 0.2% at the smaller banks, according to Federal Reserve data compiled by Barclays PLC analysts.
Chairman and CEO of US Bancorp Richard Davis said the bank's customers, businesses and households alike, have gotten used to living with less and see no immediate need, such as interest rates suddenly jumping, to kick into higher gear.
"It's torturously slow," Davis said. "It's not going to be robustly coming back on all cylinders. It is particularly the lack of a catalyst perhaps more than it is the uncertainty."
The dip echoed results announced last week by Wells Fargo & Co., the nation's top mortgage lender, which said revenue slipped as fewer people took advantage of ultralow interest rates and government programs to refinance.
Fitch Ratings analyst Justin Fuller wrote in a report that he expects revenue growth at U.S. Bank to remain challenging through the remainder of the year.
"The tail wind from mortgage banking income, which boosted results last year, is likely to slow further as the mortgage market moves from heavy refinancing activity to a more purchase-driven market," Fuller said.
So the growth of commercial and industrial loans has been slowing recently as consumer loans growth, already in low gear since mid-2012 will add to banks margins as shown by the chart below ( year-over-year growth ).
US Banks Balance Sheet ; Unbalanced
The US banks balance sheet has never been so unbalanced since the crisis as shown by the graph below. The growth of deposits has been enormous and loans has not being able to follow moneywise. So the last numbers available ( April 17 4 weeks average ), deposits were at $9.36 trillions and loans at $7.29 trillions.
Total US Deposits at Commercial Banks ( Blue / Left Scale )
Total US Loans and leases at Commercial Banks ( Red / Right Scale )
And in terms of growth year-over-year, the difference between deposits growth and loans are striking, as shown by the chart below...
Total US Deposits at Commercial Banks yoy ( Blue )
Total US Loans and leases at Commercial Banks yoy ( Red )
U.S. companies are pulling back on borrowing, which could put a drag on the limping U.S. economy and make it even harder for banks to break out of their long slump.
Outstanding loans by the biggest banks to U.S. companies declined 9% in the first two weeks of April compared with the end of March, according to Federal Reserve data. The slip followed a 2.7% rise in the first quarter, the smallest quarterly gain in two years.
Business owners “feel very, very hesitant to invest,” and the economy is “struggling to get solid footing,” but “we didn’t expect the wall we hit,” BB&T Corp. Chairman and Chief Executive Kelly King said last week. Outstanding business loans by the Winston-Salem, N.C., bank, the nation’s 12th-largest by assets, were flat in the first quarter. “I think all of us are trying to figure out what happened.”
Already, growth in investment has been uneven since the crisis, and CEOs start to be relunctant to commit more funds in a world slowing economy. As shown by the chart below, growth in commercial and industrial loans has slowed lately, matching the slowdown in investments in the US.
Change in Total US Commercial and Industrial Loans at Commercial Banks $ ( Blue )
Change in Total US Gross Private Domestic Investments $ ( Red )
Change in Total US Commercial and Industrial Loans at Commercial Banks yoy( Blue )
Change in Total US Gross Private Domestic Investments yoy ( Red )
Net Interest Margin of US Banks : Feel the Squeeze !
So, booming deposits, a slowdown in commercial and industrial loans growth and US consumers borrowing less are contributing to a squeeze that began already in 2010 and will continue in 2013 unless banks charge some administratives fees to compensate...