Bank deposits continued to fall last week, the Federal Reserve announced on Friday in its delayed H.8 release. Credit conditions have tightened further as regulators scramble to bolster confidence in the financial system.
x
Bank deposits
US commercial bank deposits fell $64.7 billion during the week ending March 29 to $17.19 trillion, marking the 10th straight week of declines. However, that was improved from the previous week, in which deposits were down by $172.1 billion.
Nationwide authorized bank deposits fell $38.3 billion, led by declines at the 25 largest institutions.
Large domestic bank deposits fell $39.9 billion, while smaller bank deposits rose $1.5 billion. That follows an outflow of $40.5 billion in the week of March 22, initially reported as $6 billion in inflows.
Nationally chartered commercial banks divested $87 billion of securities last week to nonbanks, the Fed reported. The previous week, national banks divested $27 billion of securities and $60 billion of loans to nonbanks.
bank loan
Total loans fell $45.1 billion for the week, led by a $35.2 billion drop from small banks. Large bank loans fell for the second week in a row.
Total loans fell $24 billion for the week. The $86.4 billion decline in US banks was partially offset by a significant rebound in foreign companies.
Small bank credit plunged by $148.2 billion, leading the $176.3 billion drop for commercial banks.
Total cash assets increased $51.7 billion, with a $68.6 billion increase at large national banks. Small banks’ cash coffers were down $23.5 billion during the week.
Total bank provisions for losses rose $1.1 billion, relatively unchanged from January. Small banks reduced their provisions for losses by $400 million.
Goldman Sachs on deposits, loans
Depositors have withdrawn funds from banks partly out of fear for their safety. But they also leave because bank deposit rates are well below money market rates and short-term Treasury yields.
On the Wednesday before the launch, Goldman Sachs Research reported that bank deposit rates “remain low but are increasing more rapidly than last cycle,” CNBC’s Carl Quintanilla reported.
“Earnings and bank lending are likely to fall as deposit rates rise,” Goldman Sachs wrote. “Studies suggest that every 10% drop in bank profitability reduces lending by about 2%.”
big bank earnings
Financial institutions will remain in the spotlight with key gains next week. JPMorgan Chase (JPM), fargo wells (WFC), Citigroup (C), PNC finances (PNC) and mistreated First Republic (FRC) report first quarter results on Friday, April 14.
Bank of America (BAC), Morgan Stanley (MS), Goldman Sachs (GS) and charles schwab (SCHW) will report the following week.
In addition to profits, bank deposits, loans and future guidance will be key.
First Republic suspended its dividend on its preferred shares, as a “prudential supervisory measure,” according to a regulatory filing on Friday.
Charles Schwab Update
Charles Schwab’s new customer net assets reached $53 billion in March, the company’s top executives said Thursday. The entries marked the second-highest March results in company history.
Schwab’s top brass continue to ease concerns about unrealized losses and customers moving deposits in the aftermath of the banking crisis.
“Most importantly, our business remains strong,” founder Charles Schwab and CEO Walt Bettinger wrote in the statement. Executives said earnings growth will resume once higher funding costs subside, which are driven by declining money supply and higher Fed interest rates.
Investors dumped SCHW shares in droves. Schwab shares fell 32% in March and fell a further 5.8% from April. Shares are down 40% this year and the company is on pace to post its worst quarter since the 2008 financial crisis.
Morgan Stanley downgraded Charles Schwab to equal weight from overweight early Thursday and cut its price target to 68 from 99. In a research note, analyst Michael Cyprys wrote that “limited visibility across multiple variables” remains and Morgan Stanley he is less confident around the timing of an improvement.
On Wednesday, citi (C) lowered his Schwab price target to 65 from 75, but maintained his buy rating on the stock. Analyst Christopher Allen said he lowered the estimates to reflect more conservative financial assumptions.
He added that it is still too early to tell where deposit levels will settle. However, Allen still believes that the current entry levels will be attractive to investors with longer-term horizons.
You can follow Harrison Miller for more stock news and updates on Twitter. @IBD_Harrison
YOU MAY ALSO LIKE:
Bank Stocks and Financial News and Analysis
Dow Jones Futures Jobs Rise Report; Tesla cuts prices for electric vehicles in the US
Join IBD Live each morning for stock tips before the open
IBD Digital: Unlock IBD’s Premium Stock Listings, Tools & Analytics Today
Learn to time the market with IBD’s ETF Market Strategy