Garnet Capital Advisors Blog

JPMorgan Chase, one of the largest financial institutions in the U.S., is having a pretty good year. According to CNBC, second-quarter earnings for the bank increased from $1.46 per share to $1.54 per share, beating out lower industry estimates based on its year-over-year revenue.

As JPMorgan continues to make shareholders happy, its chief financial officer, Marianne Lake, has her eye on a looming trend in the financial services industry: higher interest rates. Specifically, how higher rates will impact deposit pricing.

Lake predicts faster deposit repricing
In an earnings conference call reported on by American Banker, she expects JPMorgan will pay more on deposits in a shorter amount of time, once interest rates finally do increase.

This is a bit of an unconventional train of thought at the moment. Banks today are looking forward to higher rates in order to widen profit margins. Having to quickly reprice deposits immediately after an interest rate hike is not what many think will happen in the near future.

"We are expecting retail deposits to reprice higher and faster in this cycle than in previous rising-rate cycles," Lake said on the conference call, according to American Banker. "When we think about our sensitivity and our reprice, we model ... that it's going to be higher - somewhat higher."

So far, JPMorgan's predictions with operating costs and revenue have paid off. As previously stated, earnings per share are up. That comes even with lower revenue, because the big bank has been able to gradually reduce its expenses along the way. 

Why the higher retail deposit prices?
The changes predicted by Lake could come about for several reasons, explained American Banker. Two include an appetite for retail deposits from banks, thanks to their stability, as well as increased consumer awareness.

The big one, however, is technology. Online and mobile banking mean it is easier for consumers to move money from account to account. According to American Banker, consumers today are more likely to shift around their deposits than in the past, and they need less motivation to do so. Gerard Cassidy, an RBC Capital Markets bank analyst, explained this idea:

"In the '90s, if you wanted to move your deposits over to some place that would pay more, say to your Charles Schwab account, you'd have to mail a check and in the last rising-rate environment, 2004 to 2006, it became easier because you could do it from your desktop," Cassidy told American Banker. "But now, you can turn on your smartphone and with the touch of a couple of finger points you can move whatever you have left over very easily."

All in all, technology, consumer awareness and a desire for more retail deposits has JPMorgan and Lake thinking that repricing is going to happen sooner, rather than later, and that deposit pricing will tick up higher and more quickly than in other rising rate environments. As banks continue to monitor the interest rate and retail deposit climate, financial institutions can form strategic partnerships in this industry by speaking with Garnet Capital Advisors, a loan sale advisory firm that can leverage its network of contacts to establish appropriate relationships.