Customers are starting to move their money out of deposits that pay no interest, posing a big risk to bank profits
There’s less free money to go around for banks.
After nearly three years of rate increases from the Federal Reserve, customers are pulling billions of dollars out of accounts that don’t earn interest and putting their money into higher-yielding alternatives. That will crimp banks’ ability to grow profits going forward.
The four largest U.S. banks— JPMorgan Chase JPM -1.40%& Co., Bank of America Corp.BAC -2.52%, Wells Fargo & Co. and Citigroup Inc. —reported a combined 5% drop in U.S. deposits that earn no interest in the third quarter compared with a year ago. Customers withdrew more than $30 billion from U.S. bank accounts that don’t earn interest over the year that ended June 30, the first such annual decline in more than a decade, according to Federal Deposit Insurance Corp. data.
Many S&P 500 companies point to cautious customers, rising costs and a stronger dollar as reasons for weaker quarterly performance
Revenue growth at U.S. companies is slowing, stirring concern that a corporate-profit boom that has driven the Dow Jones Industrial Average and other major stock indexes to dozens of records in 2018 is in jeopardy.
Firms from asset manager BlackRock Inc. to computing giant International Business Machines Corp. IBM -0.11% this month have reported disappointing quarterly sales, citing such factors as cautious customers, rising costs and a stronger dollar. So far this quarter, 35% of the 85 reporting S&P 500 companies have missed Wall Street analysts’ sales forecasts, according to FactSet. If sustained, that quarterly sales-miss ratio would mark the highest this year.
The misses are contributing to the latest bout of stock-market volatility. The S&P 500 has shed 4.8% over the past month, driven by concerns about rising interest rates and trade disputes that pushed investors to dump technology stocks and shares of other fast-growing companies.