$38,400,000,000 in Deposit Flight Hits Wells Fargo and Citigroup in One Year As JPMorgan Chase CEO Issues Warning To Federal Reserve

New numbers show two of the largest banks in the US are witnessing billions of dollars in deposit flight.

Quarterly earnings data shows Citigroup’s deposits dropped from $1.3305 trillion in Q1 of 2023 to $1.3072 trillion in Q1 of this year – a reduction of $23.3 billion in a span of 12 months.

Meanwhile, deposits at Wells Fargo dropped by $15.1 billion over the same time frame, from $1.3567 trillion in Q1 2023 to $1.3416 trillion in Q1 2024.

JPMorgan Chase says deposits tumbled 7% in its Consumer & Community Banking division in Q1, excluding numbers from the firm’s majority acquisition of troubled First Republic Bank. Across the entire firm, JPMorgan says deposits were flat excluding First Republic.

Moving forward, JPMorgan chief financial officer Jeremy Barnum says America’s biggest bank expects deposit balances to remain flat at best as consumers look for more yield on their cash.

“We expect deposit balances to be sort of flat to modestly down. So that’s a little bit of a headwind at the margin… in a world where we’ve got something like $900 billion of deposits paying effectively zero, relatively small changes in the product-level reprice can change the NII run rate by a lot.”

Meanwhile, JPMorgan Chase CEO Jamie Dimon warns US banks will likely witness another crisis if the Federal Reserve decides to raise interest rates.

In his latest annual shareholder letter, Dimon says that banks as well as leveraged US firms will be in dire straits if persistent inflationary pressures force the Fed to tighten monetary policies further.

“When we purchased First Republic in May 2023 following the failure of two other regional banks, Silicon Valley Bank (SVB) and Signature Bank, we thought that the current banking crisis was over.

Only these three banks were offsides in having the toxic combination of extreme interest rate exposure, large unrealized losses in the held-to-maturity (HTM) portfolio and highly concentrated deposits. Most of the other regional banks did not have these problems. However, we stipulated that the crisis was over provided that interest rates didn’t go up dramatically and we didn’t experience a serious recession.

If long-end rates go up over 6% and this increase is accompanied by a recession, there will be plenty of stress – not just in the banking system but with leveraged companies and others.

Remember, a simple 2 percentage point increase in rates essentially reduced the value of most financial assets by 20%, and certain real estate assets, specifically office real estate, may be worth even less due to the effects of recession and higher vacancies. Also remember that credit spreads tend to widen, sometimes dramatically, in a recession.”

 

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