Major US financial groups Charles Schwab, State Street and M&T reported deposits outflows from their banking arms as investors continued to withdraw money in search of higher returns.
Schwab said on Monday that deposits fell 11 percent — or $41 billion — in the first quarter and 30 percent year-on-year. The broker, whose shares have fallen about 40 percent since January, also paused share buybacks, but reported better-than-expected adjusted earnings per share of 93 cents, up 21 percent year-over-year.
Shares of the custody bank, State Street, opened more than 15 percent lower as quarterly earnings missed expectations and weak markets and lower assets under management in its investment arm hit fees. Total deposits fell 5 percent in the first quarter to $224 billion.
Eric Above, chief financial officer at State Street, told analysts to expect another $4-5 billion in outflows from non-interest-bearing deposits in the second quarter. “Every $1 billion he has left cuts off $12 million to $15 million,” he said. from his proceeds.
The results were a tense start to a week when investors expect to hear from dozens of regional and mid-sized banks. They will outline the damage that last month’s failures of a Silicon Valley bank and two other lenders have done to the broader financial system.
Last week, some of the largest US banks, JPMorgan Chase, Wells Fargo and Citigroup, announced that they had received billions of dollars in deposits from clients fleeing smaller lenders after the collapse of SVB.
Analysts will be looking to see where this inflow is coming from to the big banks, and whether outflows have plateaued. There are also concerns about the impact of higher interest rates on banks’ loan books and securities holdings.
M&T Bank reported Monday that total deposits fell 3 percent from $163.5 billion at the end of 2022 to $159.1 billion. The Buffalo-based lender did better than analysts expected in terms of net interest income, the gap between what it pays for deposits and loan fees.
Schwab has been hit by “cash screening,” in which customers move money from lower-yield bank deposit accounts into higher-yielding options like money market funds, which can pay up to 5 percent on deposits.
Prices have risen so high that Schwab’s traditionally staid client base of retail investors moved cash out of its bank — which pays just 0.45 per cent interest on cash — at a clip that surprised it and caused it to borrow expensively to cover the outflows.
“We’re not oblivious. We know we’ve driven a lot of what’s happened and impacted our earnings in the near term,” said Walt Bittinger, CEO of Schwab.
Bettinger said Schwab has also been reaching out to “clients of all sizes” to instruct them on how to get the best rates for their cash, in essence, ramping up the cash count rate.
“It’s the right thing to do,” he said. He added that the movement of cash from bank accounts to money market funds “takes place mainly within Schwab”.
The amount of money in Schwab’s money market funds increased 150 percent to $358 billion from $143 billion in the first quarter of 2022, and increased nearly 30 percent from the end of last year.
UBS analyst Brennan Hawken wrote that Schwab’s results were “not as ugly as feared”.
On State Street, earnings per share of $1.52 fell 3 percent year over year and missed consensus expectations. But revenue rose slightly year-over-year to $3.1 billion, in line with analyst expectations.
The huge custodian bank said assets under management in its investment arm fell 10 percent to $3.6 trillion, reflecting lower markets and net outflows. Like Schwab, it said its cash management products saw inflows in March.
Chief Executive Officer Ron O’Hanley said the results “reflect the resilience of our business model, despite continued interest rate increases and subsequent large market movements, volatility and disruption in other parts of the banking industry… We expect revenue growth in the next quarter.”
This article has been updated to correct the location of Charles Schwab’s headquarters
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