Citi: U.S. Major Banks' Q3 Fundamentals Show Resilience Amid Lingering Risks
nashnova research
Citi's deep-dive on US major banks flags a double-edged sword from high rates — net interest income holds up short-term, but prolonged tightening weighs on capital-markets revenue and clouds the growth outlook.
Where is the money coming from? Interest income steady, fee income under pressure
Net interest income — what banks earn on loans minus what they pay on deposits — was the most reliable revenue line this quarter, powered by strong loan-interest earnings in a high-rate environment.
Non-interest income split sharply: wealth management hit record results, but investment banking and bond trading cooled — rates surged late in the quarter, clients pulled back, and new issuance shrank.
This means → banks are leaning harder on "earning the spread." If rates reverse, that pillar shrinks too.
Is the great deposit migration over?
The mass deposit outflows of early 2023 have faded. Funds are still shifting from non-interest-bearing to interest-bearing accounts, but the pace has slowed markedly.
Deposit beta — the share of the Fed's rate hikes that banks pass on to depositors — has normalized. Banks have stopped bidding up deposit rates aggressively and instead deepened primary-banking relationships, relying on stickier operating accounts to keep funding costs low.
In plain terms = the deposits still sitting in banks are mostly day-to-day corporate operating cash and personal transaction balances — expensive to move, high in stickiness. Even if the Fed keeps hiking, the rise in deposit costs will be far milder than in 2023.
How big is the bad-loan risk? Banks are stockpiling reserves on purpose
The defining theme is proactive risk management, not reactive write-offs. Major banks collectively added over $1.2 billion in new provisions; "provisioning ahead of charge-offs" is near-universal.
Reserve growth targets newly originated loans as a forward-looking buffer, not deterioration in the existing book. Wells Fargo, for instance, grew loans 11% year-on-year while its allowance-to-loan ratio actually fell from 1.52% to 1.38%.
Commercial real estate — office properties in particular — remains a closely watched risk. Consumer credit quality is holding up, supported by a strong labor market and wage growth. Yet high-yield credit spreads keep widening. This reflects the market pricing in future credit risk ahead of time.
How does Citi rate the Big Five?
Citi used a residual-income discount model — a method for estimating a bank's intrinsic value — and gave only Bank of America (BAC) a "Buy" rating.
JPMorgan (JPM), Wells Fargo (WFC), and the other three all received a "Neutral" — not a negative call, but a view that current share prices already reflect the fundamentals.
This means → whether the coexistence of core-business resilience and external headwinds can persist hinges on the path of interest rates and the broader macro outlook.
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