Deposits are rising. But will they stick around?
For some consumers and corporations, the uncertainty surrounding the coronavirus pandemic meant one thing: shore up as much cash as quickly as possible and put it in the bank.
Now many financial institutions are reporting upticks in deposits—in some cases, double-digit increases in just a few months. JPMorgan Chase this week reported $1.84 trillion in deposits as of March 31, a 17.5% increase since the end of 2019.
JPMorgan and other banks say that in many cases, the influx of deposits came from corporate credit-line drawdowns. As those businesses accessed their existing lines of credit, they took the cash and redeposited it into the bank for a rainy day.
But just how long will those deposits stick around? It’s anybody’s guess.
Analyst Scott Siefers of Piper Sandler said the answer will depend on how the pandemic evolves in coming weeks and what that means for the economy, where certain industries like travel and restaurants remain largely shut down.
“Still being in the teeth of the situation, we just don’t know how exactly it’s going to unfold,” he said.
The start of first-quarter earnings season this week revealed moderate to strong deposit growth.
Megabanks enjoyed some of the largest increases. In addition to the strong showing at JPMorgan, Bank of America reported $1.58 trillion in deposits on March 31, up 10.35% from the fourth quarter. And Citigroup reported $1.03 trillion in deposits, up 11%.
Wells Fargo reported that its deposits rose by 4% from the end of 2019, with both consumers and business customers adding to their cash reserves. The San Francisco bank indicated that some of its deposit growth was the result of skittish customers moving funds into federally insured accounts, while some of the increase was the product of corporate customers drawing down existing credit lines and then depositing the proceeds into the bank.
At the investment bank Goldman Sachs, deposits rose to $220 billion, up nearly 16% from the fourth quarter. Consumer deposits in the U.S. and the U.K. increased by 20% to $72 billion.
Regionals, too, are seeing increases, though not all of them have been quite as staggering as the likes of the biggest banks.
Deposits rose 9.1% at U.S. Bancorp in Minneapolis, while they climbed 4% at First Republic Bank in San Francisco.
KeyCorp on Thursday reported $115.3 billion in deposits as of March 31. That was an increase of 3.1% from the fourth quarter and 6.6% from the same quarter in 2019.
On Key’s investor call, Chief Financial Officer Don Kimble said the Cleveland bank saw about $6 billion in line draws during the quarter and “a good percentage of those [are being] reinvested or redeposited back into [the] bank for deposit flows.”
“So that’s part of the reason we’re seeing the strong deposit growth in the month of March and early April,” he said.
PNC Financial Services in Pittsburgh reported deposit balances were up nearly 6% from the fourth quarter, in part because a “high proportion of the commercial line draws were placed back with [the bank] in the form of deposits,” CFO Robert Reilly said.
William Demchak, PNC'c cairman and CEO, said, “We’ve seen a meaningful increase in deposits, with the growth in dollars now equal to the loan growth since the outbreak of COVID-19.”
What happens in the near term with deposits is worth watching, according to Betty Cowell and Leo D’Acierno, senior advisers at the strategy and marketing consulting firm Simon-Kucher & Partners.
“It really is very stunning because we’re not even through April, and this doesn’t include [funds from the Paycheck Protection Program] or stimulus payments to consumers,” Cowell said.
If the economy revives sooner rather than later, there might be a flight of excess deposits. But, if the virus is not easily contained and the recovery is choppy, those deposits could linger. And that’s not necessarily good for banks.
Too many deposits on the balance sheet could start to hurt financial institutions’ profitability, if they are paying for funds that they cannot turn into earning assets, according to Cowell and D’Acierno. And for many banks, they already have more deposits on the books than they have been able to deploy.
“Where this could be an issue for banks down the road is if this cash stays on the balance sheets,” D’Acierno said. “If it stays that way for a long time, it becomes a weight on profitability.
“If this persists, there’s going to be a lot of pressure on banks because with a weakened economy for a long time to come you’ll hear from political leadership saying banks aren’t lending,” D’Acierno said. “They will look at deposit balances and see loan balances are far short of deposit balances and that will add to the pressure on banks to look like they are contributing to the recovery of the pandemic.”
Laura Alix, Jim Dobbs, Jon Prior and Kevin Wack contributed to this article.