Truist/US banks: deposits at super regionals prove sticky

Four years ago Truist was not even a word. Today it is part of US banking vernacular. America’s seventh-largest bank by deposits holds more than $400bn in its coffers.

The name was derided on social media when first unveiled. But the company, formed in 2019 when US regional lenders BB&T and SunTrust combined, has bested bigger rivals.

In the battle for deposits, Truist holds its own. While customer money headed out of the door at JPMorgan and Bank of America during the fourth quarter, Truist reported deposits up a smidgen year-on-year to $413.3bn.

To be fair, Truist had to pay up. Its average cost of total deposits was 0.66 per cent, compared to 0.03 per cent a year ago. But loan growth was sufficient to drive the net interest margin up. Overall after-tax income rose nearly 5 per cent year-on-year, helped by a 23 per cent jump in net interest income.

Super regionals such as Truist may well have an edge when it comes to deposits. Its customers tend to keep cash in their current accounts for day-to-day banking instead of chasing returns elsewhere. Truist’s funding costs, although rising, remain low by industry standards. They are less than half of Citi’s and below those at JPMorgan and BofA, according to Morgan Stanley.

Truist has adeptly kept its costs down. Its efficiency ratio — the measure of the cost to produce each dollar of revenue — came in at 60 per cent in the fourth quarter, down from 66.5 per cent a year ago.

Yet Truist shares, which rose 3 per cent on Thursday, are down 27 per cent over the past 12 months. Its multiple of price to book value of one seems middling among US banks — higher than Citi and Wells Fargo but below JPMorgan and BofA.

Blame US regulators. Large regional banks escaped some of the tougher rules imposed on big Wall Street banks after the 2008 financial crisis. But watchdogs are expected to impose more capital requirements on this group, potentially crimping profitability. Given this uncertainty, Truist’s valuation is unlikely to move.