The collapse of two US banks last month prompted a flight of capital from small regional banks as investors turned to larger banks for safety.
Deposits at three US financial institutions fell in the first quarter as the industry’s biggest crisis in more than 10 years prompted a cash flight as customers looked elsewhere for better yields.
Deposits at custodian State Street Corp and regional bank M&T Bank Corp each fell 3 percent, while those at Charles Schwab Corp shrank 11 percent sequentially.
State Street shares plunged 11 percent, dragging its peers Northern Trust Corp and Bank of New York Mellon Corp. Shares in brokerage and financial advisory firm Schwab were up 2.8 percent in afternoon trade, and shares in M&T Bank were up 7 percent.
The results mark a mixed start to a busy week in which a number of regional US lenders are expected to report gains and the impact of last month’s collapse of two banks in the country.
Investors will also scour the executive commentary for details on the economic impact of the Federal Reserve’s quantitative tightening, which has boosted lending-derived revenues but at the same time created uncertainty.
Both Schwab and M&T Bank saw interest income rise to beat earnings expectations, but State Street lagged after an outflow of client funds impacted 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 had higher outflows from non-interest-bearing accounts, Katzke wrote.
Federal Reserve data released on Friday showed that deposits at all commercial banks in the country increased in the week ended May 5.
This has kept deposits at the largest banks above pre-Silicon Valley and Signature bank collapse levels. Deposits in small banks remained below their previous levels.
Schwab, which was gripped by the crisis last month, paused share buybacks but moved to allay concerns about its financial strength. Its chief executive officer, Walter Bettinger, addressed comments about portfolios of debt securities held by banks, including Schwab, that are reported as unrealized losses in their earnings.
“I would certainly hope that by this point the short-term speculation that we would be in a position where we would be forced to sell securities with temporary paper losses was put to bed,” Bettinger said on a conference call.
Fitch senior director Bain Rumohr said Schwab’s net income could come under some pressure during 2023 as higher-cost funding sources weigh on net interest income, “but the size and scale of the business … should support profit margins at a level that corresponds to the historical level”.
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