With US banks set to begin reporting Q1 earnings later this week, all eyes will be on which large institutions managed to weather the recent storm and gain deposits from smaller banks that experienced widespread drawdowns. Even some of the big banks are expected to have experienced deposit flight, considering a significant amount of commercial deposits have left banks altogether and surged into money markets.
The outlook for banks remains relatively subdued due to an ongoing yield curve inversion continually denting the appeal of financials and signaling a potential recession on the horizon. Rising deposits could help certain banks improve their net interest margins, but a decline in deposits at others would indicate cheap funding for more lending activity may be increasingly hard to come by.
Related ETFs: SPDR S&P Bank ETF (KBE), SPDR S&P Regional Banking ETF (KRE)
A set of US bank earnings are coming up this week, the first period of reporting since the financial sector was thrown into turmoil by the collapse of Silicon Valley Bank (SVB) last month. Given the nature of SVB’s breakdown, deposits will be a larger focus than usual this week. According to Bloomberg estimates, JPMorgan, Citigroup and Wells Fargo may have seen deposits shrink sequentially by a total of -$63 billion for the quarter, an average decline of -1.4%. That’s not catastrophic for America’s larger depositories, which can carry trillions of Dollars in domestic deposits, but a decline in these figures essentially represents the drying up of a stream of cheap funding for banks. Weaker or even negative growth in deposit funds could adversely impact lending growth, softening the already subdued outlook for financials in the year ahead.
It’s not impossible that some amount of deposits that departed smaller commercial banks flowed upstream to their larger competitors, but Federal Reserve data indicates that, on the whole, commercial banks lost -$473.8 billion worth of deposits in the month of March, compounding a broader decline that’s wiped out more than -$967.5 billion of deposits throughout the past year. On a percentage basis, the YoY decline in deposits was equivalent to a -4.9% decline in March, a fifth straight month in negative territory, and the…
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