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Bank deposit data released late Friday shows that the biggest U.S. banks,, which are also the most heavily regulated, saw deposits rise at the expense of smaller regional banks. Still, the situation isn’t as bad as market participants were fearing, analysts wrote over the weekend.
Bank shares are rising in Monday premarket trading; the SPDR S&P Bank ETF (NYSEARCA:KBE) climbed 3.0% and the SPDR S&P Regional Banking ETF (NYSEARCA:KRE) gained 3.2%. The strong moves also come after the FDIC announced that First Citizens (FCNCA) agreed to acquire Silicon Valley Bank’s deposits and loans.
Evercore ISI analyst John Pancari said the shift “appears a bit milder than expected and could help calm fears somewhat.” The data demonstrate that the top 25 domestically chartered banks’ deposit market share increased to 66.4% as of March 15 from 65.7% in the previous week.
The top 25 banks’ deposits rose by $120B, while 850 smaller banks lost ~$108B in deposits. “In aggregate this should screen well vs. fears and bode well for perceptions of regional bank liquidity and capital,” Pancari wrote in a note to clients.
Oppenheimer analyst Chris Kotowski said, “There will no doubt be other deposit leakages in coming weeks and months, but this we believe probably represents the worst of the initial panic reaction.”
He pointed out that the industry lost ~$100B to end at $17.5T. While the industry couldn’t afford to lose that much every week, “we should recognize that in the wake of COVID 19, some $4.7T of deposits sloshed into the banking system, and even with this week’s decline, only $575B has sloshed out,” Kotowski wrote.
J.P. Morgan analyst Vivek Juneja noted that borrowings at small banks rose $241B (59%) and by $230B (35%) at large banks, “this likely reflects increased FHLB borrowings and usage of Fed facilities by regional banks.”
Liquid assets also spiked up, likely due to the borrowings — up ~$350B at large banks and up ~$100B at small banks, he said.
Oppenheimer’s Kotowski highlighted that the loan-to-deposit ratio at 69.5% was still below the 75.3% just before COVID. “While the industry will have some challenges in the wake of SIVB’s collapse, we think the 24.6% decline in the BKX is way overdone,” he said.
The firm continues to recommend Bank of America (NYSE:BAC), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), Jefferies Financial (NYSE:JEF), JPmorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS), and U.S. Bancorp (NYSE:USB).