US Bank Outlook - January 2024

Funding costs continue to grind higher, even in the absence of additional rate hikes by the Federal Reserve, as deposits shift into higher-cost products. The movement will lead to additional modest pressure on margins in the near term, but the key profitability metric should trough soon. As that headwind dissipates, a new one should emerge in the form of higher credit costs. Still, the hit to earnings should be modest and allow for many banks to continue reporting attractive returns.

S&P Global Market Intelligence.

Key findings include:

• Funding costs continue to grind higher, even in the absence of additional rate hikes by the Federal Reserve, as deposits shift into higher-cost products.
• Stiffer financial conditions will cause credit quality to slip a little further in the fourth quarter but eventually lead to notably higher charge-offs in 2024. However, even with net charge-off losses in 2024 expected to more than double from 2022 levels, losses and the reserves required to fund them should prove a modest hit to earnings.
• As it becomes challenging to grow earnings, more institutions could announce efficiency programs. Other banks will face earnings walls, and that should ultimately prompt more M&A discussions as deals offer the opportunity to cut costs.

If you are a client of S&P Capital IQ Pro, you can access the complete U.S. Bank Outlook here.

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S&P Global Market Intelligence. We provide essential insights for our clients through powerful business intelligence solutions that combine comprehensive data, actionable analytics

S&P Global Market Intelligence. We provide essential insights for our clients through powerful business intelligence solutions that combine comprehensive data, actionable analytics