Big US banks are set to report the thinnest margins between the rates at which they borrow and lend since the 1950s, as profits are squeezed by the Federal Reserve’s policy of ultra-low interest rates.
Wells Fargo sparked a sell-off in bank stocks on Friday when it revealed its net interest margin had fallen more than anticipated as the bank could not find safe and profitable avenues to invest tens of billions of dollars of customer deposits.
JPMorgan Chase, Bank of America and Citigroup are all expected to suffer from the same phenomenon in their fourth-quarter earnings this week. The average of analysts’ estimates for the four biggest banks’ net interest margin is 2.8 per cent, down from about 4 per cent 10 years ago. Longer-term industry data from the Federal Deposit Insurance Corporation shows the current low level was last reached more than 50 years ago.