US Banks How Willing Is Your Bank to Pay Up for Deposits M...-110335334

M UpdateUS Banks | North AmericaHow Willing Is Your Bank to Pay Up for Deposits? Mid-September UpdateMorgan Stanley & Co. LLCBetsy L. Graseck, CFAEquity Analyst Betsy.Graseck@morganstanley.com +1 212 761-8473 Manan GosaliaEquity Analyst Manan.Gosalia@morganstanley.com +1 212 761-4092 Jeffrey Adelson, CFAEquity Analyst Jeff.Adelson@morganstanley.com +1 212 761-1761 Brian Wilczynski, CFAResearch Associate Brian.Wilczynski@morganstanley.com +1 212 761-1084 Alexander L WardResearch Associate Alex.Ward@morganstanley.com +1 212 296-3096 Large Cap BanksNorth AmericaIndustry ViewAttractiveConsumer FinanceNorth AmericaIndustry ViewIn-LineMidcap BanksNorth AmericaIndustry ViewAttractive Exhibit 1 : 0.01.02.03.04.05.06.0Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17Mar-18Sep-18Mar-19Sep-19Mar-20Sep-20Mar-21Sep-21Mar-22Sep-22Mar-23Sep-23Mar-24Sep-24Average CD Rates (%) 1-12 month13-36 monthHighest Rate CDEffective Fed Funds rate Source: Company data, Federal Reserve, Morgan Stanley Research Exhibit 2 : (highest rate for CD < 36 mo)1-12 month13-36 monthHighest RateBankCD RateCD Rate≤ 36 monthsHighest RatesMBIN5.25 3.98 5.25 FHN5.15 0.10 5.15 NYCB5.15 4.75 5.15 OZK5.10 4.70 5.10 Lowest RatesFITB4.20 3.50 4.20 USB4.00 3.00 4.00 CIT3.00 3.50 3.50 Source: Sorted by the highest rate less than 36 months, as of 9/12/2024. Source: Company data, Morgan Stanley Research. The CD Market agrees, lower rates are coming: Banks have already brought down their CD rates in anticipation of a 25 bps rate cut next week during the FOMC meeting. ~50% of the 36 banks we track decreased their highest CD rate since July 31st. The average highest rate and 1-12 month rates are down 20 bps and 19 bps, respectively, directionally in line with Fed rate cut expectations. 13-36 month rates are down 32 bps. The more significant decrease in 13-36 rates is consistent with what we have heard from management teams i.e., banks are looking to shorten the term of their CD books. Among the primarily online deposit gatherers (ALLY, AXP, COF, DFS, and SYF), the average highest CD rate decreased 35 bps from 4.92% to 4.57%, the average online savings rate was down 4 bps to flat at 4.52%.Where does CD pricing go from here?: We believe the following factors should drive the forward path of CD pricing: 1) Fed messaging at September FOMC: We are focused on Powell's messaging on the willingness to do additional rate cuts in successive subsequent meetings. 2) Loan growth: If loan growth continues to be muted, banks will be less compelled to pay up for deposits. This could lead to less pricing competition driving CD rates lower. CD Rates Data Summary:• Highest CD Rates: