Wells Quiet on Sweeps on Q3 Call
Wells Fargo hosted its Q3 2024 Earnings Call last week. (See the release here and the transcript here.) CEO Charlie Scharf comments, "We continue to see more pronounced stress in certain customer segments with lower deposit and asset levels, where inflation has partially offset strong employment and wage growth." CFO Mike Santomassimo tells us, "Net interest income declined $233 million or 2% from the second quarter, $128 million of this decline was due to the increased pricing on sweep deposits and advisory brokerage accounts ... that we highlighted on last quarter's call. This was the lowest linked-quarter decline in net interest income since third quarter 2023, as customer migration to higher yielding deposit products continued to slow and the pace of deposit pricing increases also decelerated. Deposit costs were up 7 basis points in the third quarter with approximately half of this increase driven by the pricing increase on sweep deposits in advisory brokerage accounts. The third quarter increase in deposit costs was lower than the 10 basis point increase in the second quarter and the 16 basis point rise in the first quarter. In response to the Federal Reserve rate cut in September, we have reduced rates on promotional deposit offers in our consumer businesses. Pricing on sweep deposits and advisory brokerage accounts, which are aligned to money market funds, will continue to move in-line with Fed rate cuts." He also says, "Wealth and Investment Management revenue increased 5% compared with a year ago, due to higher asset based fees driven by increased market valuations, as well as higher brokerage transaction activity, partially offset by lower net interest income, driven by the increased pricing on sweep deposits in advisory brokerage accounts." See also, MarketWatch's "Money-market funds shed $6.5 billion in assets. No, the flood out of cash isn't here". It says, "Investors pulled about $6.5 billion out of money-market funds in the past week through Wednesday, according to data from the Investment Company Institute. You could blame the long weekend, or just 'a quirk of the calendar,' where institutional assets in money-market funds tend to drop around the 15th of each month. But no. This isn't the long-awaited exodus from bulging money-market funds that many on Wall Street have been anticipating, said Peter Crane, president and CEO of Crane Data. 'Rates would have to drop below 3% or lower,' Crane told MarketWatch on Thursday. And the Fed would need to be done cutting rates too, he said. That's because falling rates are actually short-term positive for money-market flows, according to Crane, because all of the things money-market funds compete with, including overnight repos, T-bills and CDs, tend to see their rates drop, while rates on money-market funds lag, he said. November and December also tend to be the strongest months for money-market inflows, Crane said."
