Banks face uncharted waters as deposits plunge & mortgages stall 😶‍🌫️; FinTech M&As don't stop: 3 deals in a single day 🤯; BNPL - a blessing in disguise? 🤔

FinTech is Eating the World, 13 October

Hey Everyone,

TGIF! What a week it was 🤯 And it’s not over! Today we’re looking at banks that face uncharted waters as deposits plunge & mortgages stall (what’s happening & what’s next), FinTech M&As that don’t stop (it’s the best time for cash-rich FinTechs + some bonus M&A resources to nail your deals), and question whether BNPL is a blessing in disguise (is it really helping those it should be helping?). Let’s jump straight into the amazing stuff 🌶

Banks face uncharted waters as deposits plunge & mortgages stall 😶‍🌫️

Following the money 💸 United States banks are sailing into uncharted waters as the Federal Reserve's interest rate hikes upend core business lines.

Let’s take a look.

More on this 👉 According to an S&P Global analysis, banks suffered a record $872 billion outflow of deposits in the past year. Meanwhile, mortgage demand has dropped to lows not seen since 1995. Ouch.

The impact 📊 The deposit drain signals mounting stress for banks. Over the 12 months ending June 30, deposits industry-wide fell 4.3% to $17.3 trillion. That’s a lot, when you think about it…

The four largest banks - JPMorgan Chase JPM 0.00%↑, Bank of America BAC 0.00%↑, Wells Fargo WFC 0.00%↑, and Citi C 0.00%↑ - accounted for 30% of the plunge. Among the biggest losers was Charles Schwab, which saw deposits tumble 31% largely due to outflows from brokerage accounts. Damn.

Rising rates have also quashed mortgage demand. Applications were down 27% versus last year, with refinancing especially hard hit at a 21% decline.

The average 30-year fixed mortgage rate recently topped 7.4%, not seen since the early 2000s. Though higher rates typically moderate home prices, this time supply shortages have kept prices elevated even as fewer buyers can afford purchases.

✈️ THE TAKEAWAY

What’s next? 🤔 The deposit and mortgage trends highlight how the Fed's storm of rate hikes continues thundering through the economy in unpredictable ways. Tighter credit conditions may weigh on hiring and growth, outcomes the Fed has already acknowledged. Yet with the economy proving resilient so far, the central bank appears willing to risk further rate increases. Let’s wait and see how it goes.

For banks, the shifting landscape will require adjusting strategies and expectations. Reduced deposits limit their ability to fund new loans and generate interest income. And the mortgage market may remain depressed for the foreseeable future if rates stay elevated. Having said that, the industry could see consolidation as weaker banks struggle to adapt. But nimble players could also view the volatility as a chance to gain share (hint: JPM is always watching 👀). But either way, one thing is clear - US banks face a prolonged voyage through choppy waters. Buckle up!