Bank deposits continued to decline last week, the Federal Reserve announced Friday in its delayed H.8 release. Lending conditions tightened further as regulators scramble to shore up confidence in the financial system.
Bank Deposits
U.S. commercial bank deposits fell by $64.7 billion for the week ending March 29 to $17.19 trillion, marking the 10th consecutive week of declines. However, that improved from the week prior, which saw deposits decrease by $172.1 billion.
Domestically chartered bank deposits fell by $38.3 billion, led by declines at the 25 largest institutions.
Large domestic bank deposits fell by $39.9 billion, while smaller bank deposits ticked up by $1.5 billion. That follows outflow of $40.5 billion in the week of March 22, initially reported as $6 billion in inflows.
Domestically chartered commercial banks divested $87 billion in securities last week to nonbank institutions, the Fed reported. The week prior, domestic banks divested $27 billion in securities and $60 billion in loans to nonbank firms.
Bank Lending
Overall lending fell by $45.1 billion for the week, led by a $35.2 billion drop from small banks. Large bank lending edged lower for the second week in a row.
Total borrowings fell by $24 billion for the week. The $86.4 billion decline at U.S. banks was partially offset by a major uptick at foreign firms.
Small bank credit tumbled by $148.2 billion, leading the $176.3 billion decline for commercial banks.
Overall cash assets increased by $51.7 billion, with a $68.6 billion jump at large domestic banks. The cash coffers at small banks shrunk by $23.5 billion during the week.
Total bank allowances for losses inched up $1.1 billion, relatively unchanged since January. Small banks decreased their loss provisions by $400 million.
Goldman Sachs On Deposits, Lending
Depositors have pulled funds from banks in part over fears about their safety. But they are also leaving because bank deposit rates are far below money market rates and short-term Treasury yields.
On the Wednesday leading up to the release, Goldman Sachs Research reported bank deposit rates "remain low but are increasing more quickly than they did last cycle," CNBC's Carl Quintanilla reported.
"Bank profits and lending are likely to fall as deposit rates increase," Goldman Sachs wrote. "Studies suggest that each 10% decline in bank profitability reduces lending by around 2%."
Big Bank Earnings
Financial institutions will stay in the spotlight with key earnings next week. JPMorgan Chase, Wells Fargo, Citigroup, PNC Financial and battered First Republic all report Q1 results on Friday, April 14.
Bank of America, Morgan Stanley, Goldman Sachs and Charles Schwab will report the following week.
In addition to earnings, banks' deposits, lending and guidance going forward will be key.
First Republic suspended its dividend on its preferred shares, as a "measure of prudent oversight," according to a Friday regulatory filing.
Charles Schwab Update
Charles Schwab's net new client assets hit $53 billion in March, the company's top executives said Thursday. The inflows marked the second-highest March results in the firm's history.
Schwab's top brass continues to soothe concerns about unrealized losses and clients moving deposits following the banking crisis.
"Most important, our business remains robust," founder Charles Schwab and CEO Walt Bettinger wrote in the release. The executives said earnings growth will resume once higher funding costs decrease, which are buoyed by the decrease in money supply and higher Fed interest rates.
Investors ditched SCHW stock in droves. Schwab shares tumbled 32% in March, and fell an additional 5.8% to start April. Shares are down 40% this year, and the company is on track to record its worst quarter since the 2008 financial crisis.
Morgan Stanley downgraded Charles Schwab to equal weight from overweight early Thursday and slashed its price target to 68 from 99. In a research note, analyst Michael Cyprys wrote that there remains "limited visibility on multiple variables," and Morgan Stanley is less confident around the timing of an improvement.
On Wednesday, Citi lowered its Schwab price target to 65 from 75 but maintained its buy rating on the stock. Analyst Christopher Allen said he reduced estimates to reflect more conservative financing assumptions.
He added that it's still too early to tell where deposit levels will settle. However, Allen still believes current entry levels will be attractive for investors with longer-term horizons.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
