The largest US banks are expected to reveal this week that customers withdrew tens of billions of dollars in deposits at the start of 2023, even as they gained new customers following the collapse of Silicon Valley Bank.

Analysts are forecasting that depositors seeking higher returns from alternatives like money market funds pulled almost $100bn in aggregate from JPMorgan, Bank of America, Citi and Wells Fargo in the first three months of 2023, according to consensus data compiled by Bloomberg.

If correct, it would come despite the failures of SVB and Signature Bank in March, which sparked customers to move deposits from smaller regional banks into bigger ones.

Deposits are typically banks’ cheapest source of funding and a reduction could constrain lending. The big banks have steadily been losing deposits for the past 12 months as the Federal Reserve has raised rates.

“The number one, two or three things to watch this quarter are deposits, deposits, deposits,” said Jason Goldberg, research analyst at Barclays.

Line chart of Deposits in trillions of dollars showing Big US banks expected to lose more deposits in first quarter

JPMorgan, Citi and Wells Fargo report earnings on Friday, followed by Bank of America on April 18. Goldman Sachs and Morgan Stanley, which have businesses that skew more towards investment banking, trading and asset management, report earnings on April 18 and 19, respectively.

On average, first-quarter revenues at the six big US banks are expected to rise just over 6 per cent year on year while earnings per share are expected to increase by just over 1 per cent, according to Bloomberg estimates.

Analysts expect revenues will rise the most at the banks with large retail operations, namely JPMorgan, BofA, Citi and Wells. Investment banking is expected to have suffered another challenging quarter as Wall Street grapples with a prolonged dealmaking slowdown that is expected to hurt Goldman and Morgan Stanley hardest.

Revenues from trading are also likely to be down year on year but will remain at very healthy levels given recent volatility in financial markets, analysts expect.

Line chart of Deposits in trillions of dollars showing Deposits at commercial banks in the US

Prior to the collapse of SVB and Signature, deposits had been flowing out of the banking system and into higher-yielding assets like money market funds because many banks were not passing on significantly higher rates to depositors.

This boosted profit margins from lending but withdrawals put pressure on banks to lift their so-called “deposit betas”, which measure how much of any rise in interest rates lenders expect to pass on to customers.

If rates remain high, banks will either have to make do with lower levels of deposits or begin offering customers higher rates.

“Margins are under pressure because the deposit betas are accelerating,” said Betsy Graseck, research analyst at Morgan Stanley.

Line chart of Index performance in % showing US banks stocks lagged the broader market in the first quarter of 2023

The deposit flight at big banks during the first quarter is expected to have been partially offset by a rush to safety by customers in the wake of the collapse of SVB. Recent data from the Fed shows that since March 8, when fears about SVB’s viability hit fever pitch, the largest 25 US banks had pulled in roughly $73bn. Smaller banks with less than $85bn lost around $206bn over the same period.

Larger banks like JPMorgan, which are deemed by regulators to be systemically important to the economy, are viewed by some customers as more reliable custodians of their cash given they are more heavily scrutinised by officials.

“Where have the deposits been flowing to? That is the number one thing that everyone’s going to be focused on,” said Graseck.

However any boost to deposits for larger banks following last month’s bank failures could prove to be shortlived unless they offer higher rates to compete with rival savings products like money market funds, which have seen inflows of more than $350bn in the past month.

Bank management teams will not be “Pollyanna-ish and think that all this money’s just going to be permanent”, according to Scott Siefers, banking analyst at Piper Sandler.

Smaller regional and “super-regional” banks such as Citizens and US Bancorp will report results the week of April 17. First Republic will report on April 24.

Adding to investor concerns is the proportion of deposits that lenders invested in longer-dated securities like US Treasuries and mortgage-backed securities when interest rates were low. This boosted profits when the investments were made but these securities are now worth less paper following rate rises. It was this investment strategy that in large part resulted in the demise of SVB.

“There’ll be a question about how quickly do those securities portfolios burn down,” said Oppenheimer research analyst Chris Kotowski.


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