Citi's high deposit betas to squeeze interest margins - Moody's

Citigroup Inc may see more net interest margin (NIM) pressure than the other four big U.S. banks this year due to its high deposit betas, or the percentage of changes in interest rates that banks pass on to consumers, a Moody's report showed.

That would make it harder for Citi to catch up with rivals on profitability as a higher deposit rate increases a bank's interest expense.

"Over the course of this Fed tightening cycle, we calculate that Citi has had the highest deposit beta, and the gap in its deposit beta relative to peers widened even further in the fourth quarter of 2022," analysts at Moody's Investors Service wrote in a report on Tuesday.

Wall Street banks have enjoyed healthy NIMs so far as the Federal Reserve pumped up interest rates to rein in inflation, but deposit betas have also leapt and are now threatening to erode margin expansions.

Also, the Fed's quantitative tightening will drain out deposits from the U.S. banking system, including from the four large banks - Citi, Bank of America Corp, JPMorgan Chase & Co and Wells Fargo & Co - the report added.

Citigroup's NIM expanded 41 bps, the lowest among the four, to 2.39% in the fourth quarter ended Dec. 31 from a year ago, according to data from Refinitiv.

In a further sign of NIM pressure ahead, Citigroup's cost of interest-bearing deposits swelled to 2.10% from 0.28% during the period, a company presentation showed.

While Wall Street analysts remain concerned about the bank's fundamentals, shares have gained 13% so far this year after shedding 25% in 2022, with a key technical indicator inching closer to a potential bullish signal.