Deposits at three United States financial institutions fell in the first quarter as the industry’s biggest crisis in more than 10 years prompted a flight of funds, with customers seeking better returns elsewhere.
Deposits at custodian bank State Street Corp and regional bank M&T Bank Corp fell by 3 percent each, while those at Charles Schwab Corp shrank by 11 percent from the prior quarter.
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State Street’s stock plunged by 11 percent, dragging down its peers Northern Trust Corp and Bank of New York Mellon Corp. Shares of brokerage and financial advisory firm Schwab were up 2.8 percent in afternoon trading and M&T Bank shares were up 7 percent.
The results mark a mixed start to a busy week during which a number of US regional lenders are expected to report earnings and the impact of the crumbling of two banks in the country last month.
Investors will also be parsing executive commentary for details on the economic impact of the Federal Reserve’s quantitative tightening, which has boosted the income earned via lending but has, at the same time, given rise to uncertainty.
Both Schwab and M&T Bank rode a surge in interest income to beat profit expectations but State Street fell short after an outflow of client funds hurt its fees.
Credit Suisse analyst Susan Katzke wrote in a research note that State Street’s earnings fell short of estimates due to lower-than-expected net interest income. The firm showed heavier outflows from non-interest-bearing accounts, Katzke wrote.
US Federal Reserve data released on Friday showed deposits at all commercial banks in the country rose to $17.43 trillion in the week ending April 5, an increase that was generally evenly shared between the largest 25 banks as well as the small and mid-sized banks.
That left deposits at the largest banks above the levels before the collapse of Silicon Valley Bank and Signature Bank. Deposits at small banks were still short of their previous levels.
Schwab, which was caught up in the crisis last month, paused stock buybacks, but moved to allay concerns about its financial strength. Its chief executive officer, Walter Bettinger, addressed commentary about portfolios of debt securities held by banks, including Schwab, which are disclosed as unrealised losses in their earnings.
“I would certainly hope that by this point the short-driven speculation that we would find ourselves in a position where we would be forced to sell securities that have temporary paper losses has been put to bed,” Bettinger said on a conference call.
Fitch Senior Director Bain Rumohr said Schwab’s net revenue may be modestly pressured throughout 2023 as higher cost funding sources weigh on net interest income, “but the firm’s size and scale … should support profit margins at levels consistent with historical levels”.