Deposits at three financial institutions fell in the first quarter as the industry’s biggest crisis in more than a decade 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 3 percent each, while those at Charles Schwab Corp. shrank 11 percent from the prior quarter.
State Street’s stock plunged 9.2 percent to close at $72.68 on Monday, dragging down peers Northern Trust Corp.and Bank of New York Mellon Corp., while shares of brokerage and financial advisory firm Schwab closed 3.9 percent higher and M&T Bank shares were up nearly 8 percent.
The results mark a mixed start to a busy week during which a number of regional lenders are expected to report earnings and the impact from the crumbling of two banks last month.
Investors will also be parsing executive commentary for details on the economic impact from the Federal Reserve’s quantitative tightening, which has boosted income earned via lending but has, at the same time, fueled 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.
There is growing competition for deposits. Apple Inc. said on Monday that Apple Card users can earn 4.15 percent on their savings account, which it said was ten times higher than the national average.
Federal Reserve data released on Friday showed deposits at all commercial banks rose to $17.43 trillion in the week ended April 5, an increase about evenly shared between the largest 25 banks and the small and mid-sized banks. That left deposits at the largest banks above the levels prior to the collapse of Silicon Valley Bank and Signature Bank, but at small banks 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 unrealized 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.”
Meanwhile, UBS on Tuesday said it was making changes to its $6 billion share buyback program following its takeover of Credit Suisse.
UBS said it will use some of the shares for the takeover rather than cancelling them as originally planned after getting approval from the Swiss Takeover Board.
Switzerland’s biggest bank agreed in March to buy rival Credit Suisse CSGN.S for 3 billion Swiss francs in stock and agreed to assume up to 5 billion francs in losses, in a merger engineered by Swiss authorities to avoid more market-shaking turmoil in global banking.
UBS on Tuesday said it had decided against issuing new shares for the deal, but would instead use shares that had already been issued.
Under the deal, one UBS share will be exchanged for 22.48 shares in Credit Suisse, requiring a maximum of 178 million UBS shares to be used.
So far under the buyback – which was launched in March 2022 and will run until 2024 – 298.5 million shares have been bought back, equivalent to 8.47 percent of its stock, UBS said. — Reuters
