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Major US banks are anticipated to disclose deposit flight in upcoming earnings

The biggest US banks are anticipated to announce this week that customers withdrew tens of billions of dollars' worth of deposits at the beginning of 2023, despite the fact that they were adding new clients in the wake of Silicon Valley Bank's failure.

According to consensus estimates provided by Bloomberg, analysts predict that in the first three months of 2023, depositors will withdraw over $100 billion in total from JPMorgan, Bank of America, Citi, and Wells Fargo in search of higher yields from alternatives like money market funds.

If true, it would occur in spite of the March failures of SVB and Signature Bank, which prompted clients to transfer deposits from smaller regional banks into larger ones.

A decrease in deposits could limit lending because they are often the least expensive source of funding for banks. As the Federal Reserve has raised rates over the past 12 months, the major banks have been losing deposits steadily.

"The number one, two or three things to watch this quarter are deposits, deposits, deposits," according to Jason Goldberg, a research analyst at Barclays.

On Friday, JPMorgan, Citi, and Wells Fargo announce earnings. Bank of America follows on April 18. On April 18 and 19, respectively, Goldman Sachs and Morgan Stanley, whose businesses lean more toward investment banking, trading, and asset management, report earnings.

According to Bloomberg forecasts, first-quarter revenues at the six major US banks are anticipated to expand by an average of just over 6% while earnings per share are anticipated to rise by an average of just over 1%.

Analysts predict that JPMorgan, BofA, Citi, and Wells, four banks with significant retail operations, will see the largest increases in revenues. As Wall Street struggles with a protracted dealmaking slowdown that is anticipated to hit Goldman and Morgan Stanley the most, investment banking is projected to have experienced another difficult quarter.

Given the recent volatility in the financial markets, analysts anticipate that trading revenues would also likely decrease year over year but will still be at extremely strong levels.

Deposits had been moving out of the banking system and into higher-yielding assets like money market funds prior to the failure of SVB and Signature because many banks were unable to pass on significantly higher rates to depositors.

Lending profit margins increased as a result, but withdrawals forced banks to raise their so-called "deposit betas," which indicate how much of an increase in interest rates they anticipate passing on to consumers.

Banks will either have to accept lower levels of deposits or start charging clients higher rates, if rates remain high.

"Margins are under pressure because the deposit betas are accelerating," according to Morgan Stanley research analyst Betsy Graseck.

Customers' rush to safety following the collapse of SVB is anticipated to have somewhat offset the deposit flight at big banks during the first quarter. The largest 25 US banks have taken in around $73 billion since March 8, when concerns over SVB's survival reached a fever pitch, according to recent statistics from the Fed. Over the same period, smaller banks with assets under $85 billion lost about $206 billion.

Some clients believe that larger banks, like JPMorgan, which authorities consider to be systemically important to the economy, are more reliable to hold their money because they are subject to greater scrutiny.

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

If larger banks don't raise their rates to compete with other savings products like money market funds, which have had inflows of more than $350 billion in the past month, any increase in deposits following last month's bank collapses may only be temporary.

According to Scott Siefers, a banking analyst at Piper Sandler, bank management teams will not be "Pollyanna-ish and think that all this money’s just going to be permanent."

During the week of April 17, smaller regional and "super-regional" banks like Citizens and US Bancorp will release their results reports. On April 24, First Republic will report.

Investor worries are increased by the portion of deposits that lenders invested in longer-dated securities during the low interest rate environment, such as US Treasuries and mortgage-backed securities. This increased profits when the investments were made, but due to rate increases, these assets now have less paper value. This investment approach had a significant role in SVB's downfall.

"There’ll be a question about how quickly do those securities portfolios burn down," according to Chris Kotowski, an analyst at Oppenheimer Research.



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