Apple puts pressure on US banks to withdraw nearly $60bn in deposits

Customers continued to move money around in search of better returns. The first quarter saw a combined outflow of almost $60bn from the bank accounts at Charles Schwab State Street M&T.

The collapse of Silicon Valley Bank last month and of two other US lenders has accelerated the deposit flight. Cash is now moving out of accounts at a rate not seen since 2008’s financial crisis.

Apple and Goldman Sachs announced on Monday the launch of an Savings Account that pays a market leading 4.15 percent per year.

US savers are pulling cash from low-yielding accounts and investing it in alternative products, such as Treasury bills or money market funds that offer better returns. This allows them to benefit from the Federal Reserve’s sharp rises in interest rates. According to government statistics, the average US savings rate for bank accounts is only 0.37 percent, while the Fed’s benchmark interest rate ranges from 4.75 to 5 percent.

Schwab announced Monday that deposits had fallen by 11 percent, or $41 billion, in the first three months and 30 percent year-over-year to $325.7 billion. State Street Custody Bank’s total deposit fell by 5 percent in the first quarter, to $224 billion, which was more than expected. The group also told analysts that the outflow of non-interest bearing deposits in the second quarter could be between $4bn and $5bn.

M&T Bank has reported that total deposits have declined by 3 percent from $163.5bn in 2022 to only $159.1bn.

The deposit flow, reported as part of first-quarter earnings, signaled an anxious beginning to a week in which dozens of mid-sized and regional banks will announce their results. This will provide a more complete picture of the damages caused by the failure of SVB last month and other lenders.

Last week, JPMorgan Chase and Wells Fargo, three of the largest US banks announced that they had collected billions in deposits from customers who fled smaller lenders after SVB’s failure.

State Street shares fell more than 9 percent in New York on Thursday after its quarterly profits failed to meet expectations, and the investment arm’s fees were affected by a reduction in assets under management.

Ron O’Hanley said that the sharp drops in State Street’s shares, “shows the sensitivity of investors because there was such volatility” surrounding deposits.

Schwab , meanwhile, reportedbetter-than-expected profits. However they halted their share buybacks.

The rate of interest has risen so rapidly that Schwab, whose traditionally conservative customer base consists of retail investors, moved money from its bank – which pays 0.45% on cash – at such a rapid pace that it was caught off guard. It had to borrow heavily to cover these outflows.

Walt Bettinger said, “We are not oblivious.” We know we are responsible for much of the recent events that have affected our earnings in the near term.

While Schwab’s bank deposits decreased, its money market funds grew by 150 percent to $358bn, up from $143bn, in the first quarter 2022. This is an increase of almost 30 percent from the end last year.

UBS analyst Brennan Hawken stated that Schwab’s results were “not nearly as bad as expected”. The broker’s shares closed almost 4% higher.

M&T is a Buffalo-based New York lender that has done better than expected in terms of net interest income. This is the difference between what they pay for deposits and how much it charges for loans. Its shares rose by almost 8 percent.