Schwab clients pull in $8.8 billion from Prime Funds this week

(Bloomberg) — Charles Schwab Corp. saw net outflows of $8.8 billion from its premier money market funds this week as investors scrutinized the brokerage’s resilience amid questions about the health of the broader financial sector.

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Customers raised money from two Schwab Value Advantage Money funds, which had combined assets of $195 billion as of March 15, representing the largest redemptions in at least six months, according to company data compiled by Bloomberg. The data covers the three days up to March 15.

According to the company’s data, Schwab’s own government and treasury funds had inflows in each of the three days, while the major funds had outflows.

Prime funds differ from government and Treasury money market funds, which have grown in popularity since the 2008 financial crisis and since the market crisis at the outbreak of the 2020 pandemic. Prime fund assets fell by $18 billion industry-wide in the week ending March 15, as total money market fund assets increased by $121 billion, according to data from the Investment Company Institute.

While outflows pose a risk, the overall Schwab franchise remains healthy, according to a report from Bloomberg Intelligence. “Schwab’s stronger base of primarily FDIC-insured retail deposits is key support for contagion outflows,” analysts led by Neil Sipes wrote.

The outflow of top-notch funds began after a weekend in which Silicon Valley Bank and Signature Bank failed and investors rushed to review companies like First Republic Bank and PacWest Bancorp. assets at the end of 2022, leading corporate executives to reassure investors this week that it has enough liquidity to overcome market volatility.

“While the increased exposure to fixed income securities resembles that of the fallen SVB, we see the risk of unrealized losses mitigated by the Fed’s support and Schwab’s ability to generate liquidity organically,” analysts at Bloomberg Intelligence said. .

According to Mike Peterson, a company spokesperson, Schwab’s money market funds are stress tested for their exposure to interest rate changes and have daily and weekly liquidity levels that are above regulatory requirements. The company’s major funds have seen significant growth in assets over the past year, he said.

“In an environment of rising interest rates, we had clients benefiting from rapidly rising yields and now with market volatility, as we would expect, clients are seeking the relative safety of government funds,” Peterson said in an email. “Within our money market funds, we do see a rotation from prime funds to government funds, which is typical in this market environment.”

Schwab’s shares traded for just $45 on March 13, their lowest intraday price in more than two years. They’re down about 24% since March 8, when depositors fled Silicon Valley Bank and questions arose about the wider financial system. The stock fell 2.8% to $57.88 during regular New York trading on Thursday.

The Schwab Funds are among the largest prime money funds in the US, a product that typically invests in securities issued by financial institutions and non-financial companies. Prime funds are a source of capital for many of the world’s largest financial institutions, and the Schwab funds had certificates of deposit from Deutsche Bank AG and Truist Bank, as well as commercial paper issued by parts of Citigroup Inc. and Bank of America Corp., according to fund filings.

According to Crane Data, a firm that specializes in monitoring the industry, investors have flooded Treasury and government money market funds over the past week, pushing combined assets of money funds to a record $5.39 trillion as of March 15.

“We are experiencing inflows across the board, generally across all of our liquidity products,” Deborah Cunningham, chief investment officer for global liquidity markets at Federated Hermes Inc., said in an email. “It seems to be coming mainly from bank deposits.”

(Adds the total outflows of top-class funds and adds context in the fourth and fifth paragraphs)

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