This week, we heard another batch of second-quarter earnings calls for brokerages, and there still are some analyst questions and comments on cash sweeps and money markets. Raymond James Financial CFO Jonathan Oorlog says, "Client domestic cash suite and enhanced savings program balances ended the quarter at $55.2 billion, down 4% compared to the preceding quarter and representing 3.8% of domestic ... client assets. Program balances increased by nearly $1 billion in the month of June after seasonal declines for client tax payments and fee billings resulted in decreases early in the quarter. In July, domestic cash sweep and enhanced savings program balances have declined to date, in line with July's record quarterly fee billings of approximately $1.7 billion." (See the earnings call transcript here.) (Note: For those attending our European Money Fund Symposium, Sept. 22-23 in Dublin, our discounted hotel rate expires August 1.)
He explains, "Combined net interest income and RJBDP fees from third-party banks increased 1% to $656 million as the decline in RJBDP third-party fees was more than offset by higher net interest income. Net interest margin in the bank segment grew 7 basis points to 2.74% for the quarter, the result of the factors I described earlier. The average yield on RJBDP balances with third-party banks decreased 4 basis points to 2.96% primarily due to deployment of incremental cash suite program balances from third-party banks on to the bank segment balance sheet."
Oorlog continues, "Based on current interest rates and quarter end balances, net of fourth quarter fee billings, we would expect the aggregate of NII in RJBDP third-party fees to decline approximately 2% in the fourth quarter, largely the result of the lower beginning of the quarter sweep balances held by third-party banks. Keep in mind, there are many variables which will influence actual results, including any interest rate actions during the upcoming quarter and factors affecting our balance sheet, including changes in our loan and deposit balances."
During the Question-and-Answer Session, Dan Fannon from Jefferies asks, "Just within brokerage, can you talk about the fixed income outlook?" CEO Paul Shoukry replies, "Our biggest business in fixed income brokerage, and this is an important distinction from the bigger bulge bracket banks and wire houses who've had really strong quarters on the much higher volatility that you get with commodities and currencies and interest rates, especially in the environment we saw last quarter. We're really not heavily engaged in those higher volatility segments within fixed income. I mean we're really serving our biggest client base in the fixed income business, our depositories, banks and credit unions, helping them manage their securities portfolio. So in an environment where they're deposit-rich, and there's a lack of loan demand and opportunity to earn more by investing in securities out on the curve is an environment that's most conducive for us in fixed income."
Devin Ryan of Citizens JMP comments, "First question, just here on for cash balances, the decline was maybe a bit more than we had expected, and I know there's a lot that goes into that with taxes and advisory fees and investors leaning to the market. But it's a bit difficult from the outside to parse through ... what's cash sorting versus other trends. So just be good to get an update on what you're seeing around your client behavior there, what you've seen through July, if you can share that? And then also what you're expecting in the back half of the year just given what you talked about with kind of accelerating organic growth. So how much that could help for kind of rebuilding some of that transactional cash."
Shoukry replies, "Yes. I'll let Butch speak to the cash movements, particularly in the quarter. What I would say is you're right, the pipeline as it converts as new advisers bring on new clients with new assets that should be, all else being equal, a tailwind to our cash balances. And before turning it over to Butch to talk about the quarterly change in cash balances, what I would do is kind of step back first and look at the year-over-year change in sweep balances, which have been pretty resilient. It's been almost flat year-over-year at right around $42 billion for the sweep balances. So as we said maybe a year, 1.5 years ago, we feel like cash balances are relatively stable. We're not ready to declare victory on that until we actually start seeing growth in those balances. And to your point, as Butch will talk about, that wasn't the case this quarter."
Oorlog adds, "As we talked about on last quarter's call ... there's a seasonal element to cash balances in this quarter. Client tax payments in -- especially in the month of April, typically having the adverse effect on client balances in the short run. So we certainly experienced that as well as the industry at large.... We're encouraged by the month of June, ... we've seen ... $1 billion of growth in the balances ... as those seasonal factors kind of reverse. So we're hopeful that, that portends a positive trend for the balance is upcoming in the fourth quarter. But as Paul mentioned, when you look at those balance levels on a year-over-year basis, I mean there -- continues to be relative stability in those balances year-over-year."
During their Q2 earnings call, Ameriprise Financial CEO Jim Cracchiolo tells us, "Reflecting externally, equity markets moved around quite a bit in the quarter and investors paused and kept more cash on the sidelines.... Client total cash holdings increased in the quarter and remained very high as we would expect based on the market situation and near-term rates and these assets on the sideline represent a future growth opportunity."
He states, "As we've shared, we're launching new products like our new CD that came out in the second quarter. And in the coming months, we'll be bringing out HELOCs and checking accounts to add to our product offering. And I would highlight that our wealth business consistently delivers best-in-class margin. It was 29% for the quarter. As part of our larger solution set, our retirement income and protection products helped serve clients' full financial picture."
CFO Walter Berman explains, "Cash sweep balances were in line with expectations at $27.4 billion compared to $28.6 billion in the prior quarter, reflecting normal seasonal tax payments. We are seeing nice momentum in our experience adviser recruiting.... Cash earnings saw a high single-digit decline from the impact of the Fed funds effective rate reduction since the latter part of 2024. Our strategy leveraging Ameriprise Bank has been important in minimizing the impact from Fed funds effective rate reductions on our AWM business. In fact, we continue to see a modest increase in net investment income in the bank this quarter."
Finally, Invesco briefly touched on cash in its Q&A. (See transcript here.) Ken Worthington from JPMorgan says, "So first, you're a big cash manager through money funds and stable value. There's been a lot of talk about digital dollars, including stablecoins and digital money market funds. Do you think digital dollars change cash management? And how might Invesco fit into cash management and increasingly a digital dollar world?"
CEO Andrew Schlossberg answers, "Yes, thanks for the question. You're right. We're a big cash player, a big money market player, a big short-term fixed income and stable value manager. I think we've also proven to be a good innovator. So we're looking at many of the things that you mentioned, getting to a place where there could be a tokenized money market fund, for example, or other kind of single assets around the payment stream.... Cash management [is] very much on our operating agenda. But there's a lot that needs to happen for that to occur. But we're very focused on keeping pace in the digital asset space."
