JPMorgan leads banks lending least deposits in five years

, Bloomberg


The biggest U.S. banks including JPMorgan Chase & Co. and Citigroup Inc. are lending the smallest portion of their deposits in five years as cash floods in from savers and a slow economy damps demand from borrowers.

The average loan-to-deposit ratio for the top eight commercial banks fell to 84 percent in the fourth quarter from 87 percent a year earlier and 101 percent in 2007, according to data compiled by Credit Suisse Group AG. Lending as a proportion of deposits dropped at five of the banks and was unchanged at two, the data show.

Consumers and companies are reluctant to take on risk until they see more signs that business is improving, even as the Federal Reserve maintains near-record low interest rates designed to fuel growth. Putting more of the unused money to work could boost profit and help turn around the U.S. economy, whose 0.1 percent annualized drop in the fourth quarter was its worst showing since 2009.

"You've got to see sustainable economic activity before lending picks up," said Paul Miller, an analyst who follows the industry at FBR Capital Markets Corp. Until then, banks will be stuck with idle cash, Miller said. "There's no place for them to put it."

Bankers are also holding back as regulators and investors pressure them to curtail risks that fueled the 2008 global credit crisis. They're facing a barrage of new federal rules and capital requirements that require them to hold more funds in reserve and evaluate borrowers more stringently, amid concern that loans made at current rates may turn into losers when more normal levels return.

Very Short

"They're just kind of stuck, that's why right now banks are keeping things very, very short," said Nancy Bush, an analyst and contributing editor at SNL Financial LC, a bank-research firm in Charlottesville, Virginia. "The banking outlook is maddening, it's hard to see where that real inflection point is."

JPMorgan, the biggest U.S. bank by assets, had the lowest year-end ratio in the group at 61 percent, down from 66 percent in 2011. Citigroup's ratio fell to 70 percent from 76 percent last year and Bank of America Corp. slid to 84 percent from 92 percent the previous year, a five-year low at both firms. SunTrust Banks Inc. decreased to 94 percent from 96 percent.

Loan-to-deposit ratios measure how enthusiastic bankers are about lending, with higher numbers signaling a more aggressive stance. Analysts including Bush and Miller say the right number can vary depending on what kind of businesses and loans an institution holds and that firms such as Citigroup and JPMorgan, which have large investment banks, look very different from more traditional lenders.

No Magic

"There really is no magic number," Bush said. "You just don't want to see a bank over 100 percent," which may indicate the lender is relying on outside sources for short-term funds to finance loans, Bush said.

Ratios at Wells Fargo & Co. and U.S. Bancorp remained unchanged from the previous year at 84 percent and 90 percent respectively, compared with 110 percent and 117 percent five years earlier, the data show. PNC Financial Services Group Inc. was the only bank to post a year-over-year increase to 87 percent from 85 percent, according to the lender. It was 83 percent in 2007, PNC said.

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