Charles Schwab Corporation as well as several other brokerages and asset managers recently released fourth quarter earnings. Their statements and calls contained several mentions of cash, money market funds and brokerage sweep deposit accounts, which we excerpt from below. Schwab CFO Peter Crawford, commenting on shifting cash out of sweep money funds and into Schwab banks, says, "Net interest revenue set a record at $5.8 billion, up 36% year-over-year due to the Fed's rate normalization and higher interest-earning assets, which reflect growth from both client cash allocations and the transfer of sweep money market funds to bank and broker-dealer sweep. As we progressed with these transfers, the corresponding money fund revenue naturally declined, yet positive flows in our advice solutions kept asset management and administration fees at $3.2 billion, down just 5% from last year."

He adds, "We grew our consolidated balance sheet 22% to end the year at $297 billion, reflecting client cash allocations through the year -- including a December surge in the midst of heightened market volatility -- and $72 billion of sweep transfers. We ended the year with $30 billion remaining in sweep money market fund balances. Even with these transfers, we continued to generate more than enough capital to support our ongoing business growth and began accelerating returns to our stockholders."

For more on Schwab's shifting of brokerage cash from money funds into FDIC sweeps, see these Crane Data's News stories: Schwab Keeps Shifting to FDIC (10/18/18), Schwab Liquidating Cash Reserves, Shift to Sweeps; Rates Inch Higher (10/2/18), Schwab KOs Another (6/18/18), Schwab Money Market Fund Liquidates, Shift to Bank Deposits Continues (5/29/18) and Schwab Moves 25 Billion from MMFs to Deposits in Q1 (4/17/18).

Morgan Stanley, which also shifted assets from its money funds into bank deposits in 2018, reports total U.S. bank deposits of $187 billion, an increase of 7% versus the third quarter, driven by higher-than-expected deposit sweep balances. CFO Jonathan Pruzan, comments, "We did see a nice uplift in the deposits. Some of that is seasonal. But some of that was activity driven by asset allocation, the primary driver of what people do with their money in our system. And we did see people change their behavior a bit. We saw redemptions and mutual funds going into cash and cash-like products, as well as some of the dividends that they received not going back into the market." (See to our June 6, 2018 News, "Morgan Stanley to Sweep More to Banks from MMFs.")

TD Ameritrade also discussed cash on its call. When asked about "deposit beta," CFO Steve Boyle responds, "I'd be extremely surprised if we changed any pricing on deposits that we passed anything through to the customers in a flat rate environment. And we're really not seeing anything dramatic on the money moving out of cash either. So we saw a little bit of movement a quarter or two ago, that's been pretty steady.... We feel really good about betas, both in terms of how our customers are reacting in this environment. They consider this operational cash and how our competitors are reacting, they seem to be pretty rational here. So we don't expect any big changes."

He adds, "I think rates moved up pretty well over the last couple years. We saw an increase in movement over the last couple of quarters. It seems to pretty much normalize this quarter, as you said, folks are more focused on volatility. So, I don't know that we want to call the end, but my sense is that with rates leveling off here and whatnot that it's going to be a phenomenon that's sort of past us here."

CEO Tim Hockey comments on investors' recent preference for money funds, explaining, "So money market fund balances are pretty modest for us.... I think we ended the period still under like $6 billion in money market borrowing, money market suite fee balances and then money market – money market funds overall are, not sure.... Yeah. As we said, we've seen some money move into money market funds, but nothing pronounced this quarter relative to the other quarter. So I wouldn't say anything really different." (See our Oct. 15, 2018 Link of the Day, "TDAM Liquidating Money Funds.")

Interactive Brokers, which has been advertising a 1.68% sweep rate and which began a multibank FDIC sweep program in Q4, reported that "excess cash from customers' credit balances were invested primarily in reverse repos and short-to-medium-term Treasury securities, providing a continuing stream of higher interest income as clients' balances grew."

They add, "We are always looking for ways to improve what we earn on these balances, so we started an insured bank deposit sweep program, which our customers have shown interest in, and we continue to look at investing in agency securities though we did not have any of these at the end of the year. The rates we pay to our customers are indexed to the benchmarks. Accounts with over $100,000 of value in the U.S. receive interest on their cash holdings of 92 basis points, all but half of 1% of the benchmark Fed funds rate. Most competitors we know of pay practically nothing on excess overnight cash in brokerage accounts. They pocket your interest. We do not."

Bank of America revealed that Merrill Lynch's Global Wealth & Investment Management (GWIM) deposits grew by 3% year over year. It explains, "`GWIM's deposit balances benefited from market volatilities as customers moved from investments to cash. We also simplified client account structures for clients, which moved funds from off-balance-sheet sweep accounts to deposits. Global banking deposits continued to grow well, up 9% year over year.... We saw expected rotation from non-interest-bearing to interest-bearing deposits." (See our Dec. 4, 2018 Link of the Day, "BlackRock BIF Money Fund Liquidates" and our Aug. 22, 2018 News, "WSJ on Merrill Changing Sweeps.")

Finally, BlackRock barely mentions cash during its latest earnings call. But CFO Gary Shedlin notes, "BlackRock's cash-management platform continues to increase share by leveraging scale and delivering transformative distribution and risk-management technology through both Cachematrix and Aladdin. Global equity indices declined more than any year since the financial crisis, and almost every asset class but cash posted negative returns."

Note: Federated Investors released its Q4 earnings report last night and hosts its Q4 earnings call Friday morning (at 9am). Their release explains, "Investors interested in listening to the conference call should dial 877-407-0782 ... or visit `FederatedInvestors.com." Watch for our coverage of the Federated call, earnings and new filings on Monday.

Email This Article




Use a comma or a semicolon to separate

captcha image