Brokerage sweeps, rising rates and cash as a percent of client assets were topics of discussion on a number of earnings calls over the past week, including ones from TD Ameritrade and Morgan Stanley. TD Ameritrade Holding Corp.'s (AMTD) "Q4 2018 Earnings Call" contained a number of comments. During the Q&A, CFO Stephen Boyle commented, "It feels like our clients are pretty fully invested here. We've also seen a pretty significant increase in rates over the last couple years. We are seeing a bit of clients who have excess cash in their accounts ... [who] don't need it for their day-to-day operating who are now moving to get better yields on those funds.... I don't think we would expect to see significant declines or even meaningful declines in our BDA [bank deposit account] balances, but these are the things that I know you and everybody is watching pretty closely."

One analyst said, "It seems that you've taken a view that you'll let the investment cash kind of seek those higher yielding instruments and keep betas relatively low in the remaining transactional cash.... How do you weigh that versus maybe segmenting the clients more and increasing overall betas?"

TD Ameritrade President & CEO Tim Hockey responds, "We view our cash balances as mostly operating cash and we realize that there'll be some clients that will opt to move into purchase money funds, and that's okay. It's good for the client. I think it allows us, as you said, to keep relatively low pricing on that operational cash. All we're really looking to do is optimize spread income and we feel very comfortable that our current strategy is doing that well. We think if we try to raise our betas ... to keep all those balances that we'd be having a lower spread income."

Boyle added, "I'd say, we did a lot of work to try and really understand the betas of our particular tiers client cash and their sensitivity. And so, as a result, we just frankly just think we're a little smarter this time around in terms of really maximizing the opportunity for beta variances across those tiers.... It's really hard to sort through exactly where [clients are moving cash, but] on the institutional side, they're more likely to move into a purchase money market fund. On the retail side, they're more likely to purchase CDs on our platform."

See also our Oct. 15 Link of the Day, "TDAM Liquidating Money Funds, which said, "A Prospectus Supplement ... says, "On September 26, 2018, the Board of Directors of TD Asset Management USA Funds Inc. approved the liquidation of each of the TD Money Market Portfolio, TD U.S. Government Portfolio, TD Municipal Portfolio, TD California Municipal Money Market Portfolio and TD New York Municipal Money Market Portfolio, each a series of the Company, pursuant to the terms of a Plan of Liquidation for each Portfolio. The approval by the Board of the liquidations was based on the recommendation of TDAM USA Inc., the Portfolios' investment adviser ('TDAM'), which has determined that the Portfolios are no longer viable from a business and economic perspective. Under its Plan of Liquidation, each Portfolio will be liquidated on or about November 19, 2018."

On Morgan Stanley's latest Quarterly Earnings Call," CFO Jonathan Pruzan, commented, "Net interest income was $1.1 billion for the quarter up 3% sequentially. Higher NII was primarily driven by increased earning assets as higher asset yields were offset by higher funding costs. This includes the impact of the cash sweep program redesign." (See our July 25 News, "MS Liquidating AA Govt, Wells Pushes Sweep Rates Higher; Weekly Holds.")

Pruzan continued, "[A]s you mentioned we did have some CDs mature during the period.... A good amount of those dollars go into the investments accounts of those clients while some portion gets retained in the savings product.... We've talked about promotional CDs and savings. We're working on new premier cash management products and we continue to enhance our digital strategies around both payments and deposits for our client base."

He added, "We're at historical low levels of cash, and client accounts and our deposits are really more impacted by ... asset allocation than actual rates.... Whereas cash levels had been sort of 8% to 10% for quite some time, yhey’re now down at about 6%. What those do after or -- in light of some of the market volatility -- is really a question that we'll have to see as the markets evolve. But we've been in a prolonged bull market if you will and we've seen those cash levels go down."

Another analyst asked, "[H]ow quickly do your customers in wealth management expect to see higher interest rates passed on ... to keep them satisfied?" Pruzan responded, "I think you've got to think about these deposits for what they are, and historically these are really transactional. People have them in the bottom of their investment accounts to transact, to buy and sell securities, to have a little extra liquidity. What we've seen is as an investment thesis the percentage of cash that people are holding is lower and that is what we've seen reflected in the system."

He said, "In terms of rate rises, we're very competitive with our primary competitors in this space. We have our beta tab outperformed our model betas, so it's really not as rate sensitive if you will, it's really asset allocation sensitive. And as people reduce their cash amounts we'll see continue outflows."

In other news, the ICI's weekly "Money Market Fund Assets" report shows MMF assets rising in the latest week after falling sharply the prior week. Government assets rose while Prime MMFs declined. Overall assets are now up $44 billion, or 1.5%, YTD, and they've increased by $134 billion, or 4.9%, over 52 weeks. Retail MMFs have increased by $71 billion, or 7.0% YTD, while Inst MMFs have decreased $27 billion, or 1.5%. Over 52 weeks, Retail money funds have gained $104 billion, or 10.6%, while Inst money funds are up just $31 billion, or 1.7%.

ICI writes, "Total money market fund assets increased by $9.70 billion to $2.88 trillion for the week ended Wednesday, October 24, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $10.77 billion and prime funds decreased by $1.20 billion. Tax-exempt money market funds increased by $132 million." Total Government MMF assets, which include Treasury funds too, stand at $2.213 trillion (76.8% of all money funds), while Total Prime MMFs stand at $533.9 billion (18.5%). Tax Exempt MMFs total $134.4 billion, or 4.7%.

They explain, "Assets of retail money market funds increased by $1.97 billion to $1.08 trillion. Among retail funds, government money market fund assets increased by $54 million to $645.69 billion, prime money market fund assets increased by $1.58 billion to $312.49 billion, and tax-exempt fund assets increased by $330 million to $126.42 billion." Retail assets account for over a third of total assets, or 37.6%, and Government Retail assets make up 59.5% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds increased by $7.74 billion to $1.80 trillion. Among institutional funds, government money market fund assets increased by $10.72 billion to $1.57 trillion, prime money market fund assets decreased by $2.79 billion to $221.38 billion, and tax-exempt fund assets decreased by $198 million to $8.01 billion." Institutional assets account for 62.3% of all MMF assets, with Government Inst assets making up 87.2% of all Institutional MMFs.

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