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Corporate deposits surged by $200 billion at BofA, Citi and JP Morgan as pandemic spread

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Corporate clients of the three biggest US transaction banks increased deposits by $200 billion in the three months ending 31 March while drawing down $150 billion from loan facilities.

by Nicholas Dunbar and Manpreet Singh

Published: April 30th 2020

As the COVID-19 pandemic spread across world it has prompted a flight to safety among corporates. Exiting riskier investments such as prime money market funds, and drawing down on loan facilities, treasurers have redeployed cash towards large banks backed by too-big-to-fail government guarantees.

In the first quarter of 2020, corporates deposited $208 billion collectively in Citigroup, Bank of America and JP Morgan, according to SEC filings. This one quarter spike in deposits is almost equal to the increase seen in the previous seven quarters. Drawdowns on loan facilities by corporates at the same three banks increased by $150 billion in the same quarter as treasurers sought to maximise working capital amid disruptions to revenues.

Corporate Deposits

At the end of the first quarter of 2020, JP Morgan, Citigroup and Bank of America held $514 billion, $621 billion and $477 billion of corporate deposits respectively. This is the sharpest rise in corporate deposits seen across these banks. Bank of America CEO Brian Moynihan said during a 15 April earnings call that this deposit increase was “unusual” , explaining that much of the increase was a result of drawdowns of revolving loans by BofA clients.

“Not only were we able to capture as deposits, the bulk of the cash that customers drew on the revolvers that wasn’t used to pay down debt or for other purposes”, Moynihan said. “We were also able to attract billions more in additional deposits even as pricing deposits lower with falling rates”.

The surge in deposits comes as banks reported declines in transaction banking revenue as a result of continued declines in interest rates. The revenues of Treasury and Trade Solutions business of Citigroup and Global Transaction Services of Bank of America saw a dip of 7% and 6% respectively in Q1 2020. That compares to the record highs reported at the end of 2019.

Despite the dip in TTS revenue, Citigroup CFO Mark Mason highlighted the growth in corporate accounts as a positive sign.

“We continue to see that benefit of our investment in technology, given the accelerated adoption of digital tools”, Mason said. “In March, while we, as well as most of our clients were working remotely, we opened close to 1,000 accounts digitally, three times the number we opened digitally in March of last year”.

Transaction Revenues

Meanwhile JP Morgan announced a change in the way it reports transaction banking revenues. From Q1 2020, the bank said it would report the data in a new segment named ‘Wholesale payments’, including Merchant services which it previously classified as part of its corporate and commercial bank segment.

JP Morgan warned that the boost in deposits may not translate to a long-term revenue boost. “In Wholesale Payments and Security Services, tailwinds from this quarter, like elevated deposit balances, maybe relatively short-lived and more than offset by the impact of low rates and potentially lower transaction volumes if the crisis is elongated”, CFO Jennifer Piepszak told investors.

Quarter on Quarter Growth

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