Sweeps to ultra-low yielding FDIC-insured bank deposit programs continue to drive brokerage earnings, we're again learning from the latest batch of releases and conference calls. Last week, Schwab, Morgan Stanley and E*Trade all posted their Q1'19 results. (See our April 15 Link of the Day, "Schwab Q1 Earnings, Federated.") TD Ameritrade, which became the first firm in years to cut rates on its offerings, will release earnings late Tuesday, April 23. We quote from some of the latest coverage, and we also review the most recent statistics from our Brokerage Sweep Intelligence product below.

On Morgan Stanley's Q1 earnings call, CEO James Gorman commented, "We witnessed a rotation out of equities into short-term fixed income products. Asset management revenues were $2.4 billion. The 8% decline from the prior quarter was primarily driven by last quarter's lower ending asset levels.... Net interest income growth of 3% to $1.1 billion was primarily driven by the benefit of the December rate increase and the corresponding impact on our investment portfolio yields. Additionally, we benefited from the increased level of deposits at the beginning of the quarter, which was partially offset by higher prepayments fees."

E*Trade Financial CEO Karl Roessner explained, "As for core results, net interest income increased by $10 million sequentially, as our net interest margin expanded by 3 basis points to 323 basis points. And our average interest-earning assets grew by approximately $900 million. Our NIM improvement was driven by an 8 basis point expansion in gross yield offset by a 4 basis point greater cost of funds. Despite the difficult rate backdrop, the yield on assets improved as we realize the full benefit of the December fed rate hike."

He continued, "Average interest-earning assets were $61 billion, reflecting growth in deposits. This growth came amid continued customer net buying in each month of the quarter. The resiliency of our deposit base continues to underscore three key structural elements for E*Trade. First, our predominantly self directed retail customer base carries greater cash balances compared with those in advice relationships. Second, on average we capture around 10% of our customers' share of investible wealth."

Roessner added, "Coupled with the relatively smaller average size of E*Trade's accounts, this translates to cash balances that are stickier in nature, building from uninvested proceeds and accumulated dividends and interest payments. Given the relatively small portion this cash represents of our customers' overall wealth, these deposits are primarily viewed as transactional cash rather than investible cash and tend to be far less subject to yield seeking behavior."

CFO Chad Turner told the earnings call, "Our Corporate Services channel is a tremendous feeder of not only accounts and assets, but more specifically cash. Corporate Services assets will always be in motion, but our growing Corporate Services channel ensures a steady stream of customer deposits.... Moving to the cost of funding, our blended deposit rate, including customer payables, rose from 25 basis points to 32 basis points, driven higher primarily by growth in our premium savings balances. For Q2 we expect the blended deposit rate to be in the mid-30s. Growth in premium savings may pressure deposit costs, but it is already proven effective as both a customer acquisition and retention tool."

He said, "Our average reinvestment rate in the securities portfolio is currently just north of 300 basis points. We anticipate that our NIM will moderate from the Q1 level with our current expectations for full year 2019 net interest margin of 315 basis points to 320 basis points. This holds customer margin balances at their current levels, does not contemplate changes to fed funds rate over the course of the year and assumes continued strength in deposit growth."

When asked about a competitor cutting rates during the Q&A, E*Trade commented, "We're comfortable with where our rates are as of today.... Acknowledging that in any given period could be a little different is, is the right way to think about it. So we typically do that around fed funds cycles."

Rates tracked by our Brokerage Sweep Intelligence report were unchanged in the latest week, but TD Ameritrade actually cut rates earlier this month. TD Ameritrade reduced the rate on $100K from 0.12% to 0.10%. As of April 18, 2019, just E*Trade and TD Ameritrade were reporting any rates of 0.10% or lower (but only for their lowest tiers). Four brokerages (Ameriprise, RW Baird, Schwab and TD Ameritrade) have raised rates since year-end; the remaining six reported no changes.

Fidelity leads the pack among the $100K balance tier, with a yield of 0.79% as of April 18. RW Baird occupies the No. 2 spot in the weekly survey; it pays out 0.55% on its $100K tier. UBS's Deposit Account was third-ranked with a rate of 0.35% at the $100K tier, followed by Schwab's 0.33% rate and Raymond James' 0.30%. Ameriprise and Wells Fargo are paying 0.25% on balances of $100K, while E*Trade pays 0.20%, Morgan Stanley pays 0.15%, Merrill pays 0.14% and TD Ameritrade 0.10%.

The Crane Brokerage Sweep Indexes remain at their highest levels since March 2018. They average 0.26% up to $100K; 0.31% from $100K to $250K; 0.39% from $250K to $500K; 0.45% from $500K to under $1 million; 0.63% from $1M to $5M; and, 0.75% for cash exceeding $5 million. A year earlier, these rates were 0.10%, 0.12%, 0.17%, 0.18%, 0.25%, and 0.33%, respectively.

For more on brokerage sweeps, see these Crane Data News articles: BNY Keeps Dreyfus Name on Money Funds; Brokerage Sweep Rates Flat (3/5/19), Edward Jones Latest to Shift to FDIC Sweeps; ICI: MMFs Break $3T in '18 (1/31/19), Schwab, Brokerages Discuss Sweeps, Money Funds on Earnings Calls (1/25/19), SF Chronicle on Brokerage Sweeps; Bloomberg on Europe Rejecting RDM (11/28/18), TD Ameritrade, Morgan Stanley on Sweeps; Money Fund Assets Rebound (10/26/18), and Money Fund Yields, Sweep Rates Move Higher; WSJ on Savings, Deposits (10/18/18).

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