European deposit growth slows to $42bn as corporates repay loans
Treasurers in Europe are redeploying cash in contrast to colleagues in the US, the latest bank disclosures show.
Three months after they had deposited $121 billion into the top four European banks as they drew down loans, non-financial companies are starting to repay the debt, slowing deposit growth according to the latest bank disclosures. The data suggests that corporates are preparing for a European recovery while the pandemic continues to rage across the US and elsewhere.
The trend was most marked at Barclays and Deutsche Bank, which reported a combined $42 billion decline in corporate deposits during Q2. Meanwhile, deposits at HSBC and BNP Paribas increased by $83 billion during the same period.
In a reversal of Q1’s borrowing surge, loans to corporates declined at Barclays and HSBC, while remaining static at Deutsche and BNP, the data show. “Over half of the March drawdowns on revolving credit facilities were repaid in Q2”, said Tushar Mozaria, Barclays CFO, on an investor call.
Compared to banks in Europe, the top three American banks – J.P. Morgan, Citigroup and Bank of America- saw an inflow of $150 billion from corporates in Q2, as initial hopes of a quick US rebound faded amid a Covid-19 resurgence.
The total deposits in Q2 2020, for these four banks, stood at $1.31 trillion of which HSBC, Deutsche Bank, Barclays and BNP Paribas had a share of 47%, 22%, 16% and 15% respectively.
While Deutsche started charging for large corporate deposits, reflecting negative rates in the Eurozone, its corporate banking arm still saw a decrease in revenue, as CFO James von Moltke explained in the company’s Q2 investor call, “Corporate Bank revenues declined slightly as deposit repricing and balance sheet management initiatives were more than offset by interest rate headwinds”. Adding further he stated, “Revenues declined slightly, principally reflecting the impact of interest rate cuts in the U.S.”
The CFO highlighted the recovery in Asia, where apart from India the pandemic’s impact was curtailed the most. “Emerging markets revenues were higher in Asia driven by increased corporate and institutional client flows and the benefits of investments in the franchise”.
By contrast, corporate clients of the other bank giants, HSBC and BNP Paribas, continued to focus on liquidity. The banks reported a double digit growth in corporate deposits at 11.5% and 11.7% from Q1 to Q2 respectively, while the growth from 2019 end for these two banks were at 18% and 31.2%.
HSBC Bank’s corporate deposits in absolute terms rose by $60 billion from Q1 2020 and $93 billion from 2019 end, making bank’s total corporate deposits stand at $612 billion, which is highest among four banks.
In the bank’s Q2 financial report, it indicated that the rise in corporate deposit was due to “the impact of corporate clients drawing down on credit facilities, primarily in the first quarter” and the bank noted that these funds were getting ‘partially’ deployed into accounts in order to maintain liquidity. This was noticeably seen in the US and the UK markets.
On the other hand, BNP Paribas reported a two straight quarterly rise in corporate deposits. In Q2, it rose by 11.7% from Q1 and 31% from 2019 to $195 billion at the end of Q2. Prompted by a resurgence in capital markets activity, the corporate arm of the bank also saw an increase in revenue and the bank’s CFO, Lars Machenil noted in an investor call that “a very strong development in Europe and a very good performance in Asia” and the clients have “quickly and actively managed their liquidity and balance sheet in anticipation of the effect of the health crisis”.
The bank also raised €160 billion from loan, bond and equity markets for its clients. Based on forecast, the bank made a “€52 million euros ex-ante provisioning of expected losses” due to which bank’s write-offs have risen to €366 million ($402 million).
European banks’ advisory and underwriting fees have been below what US banks reported in Q2. Among European banks, Barclays reported the highest banking fees at $908 million in Q2 2020 while HSBC, Deutsche and BNP Paribas reported $434 million, $703 million and $617 million respectively.
Meanwhile, in the banking sector as a whole, deposits by non-financial corporations in Eurozone rose by €252 billion to €2.98 trillion by the end of Q2 2020 according to data compiled by the European Central Bank (ECB). The rise in these deposits from the end of 2019 to Q1 2020 was €80 billion. In the UK, the Bank of England reported that corporate deposits increased by £61 billion to £516 billion in Q2 2020. In Q1 this rise was £20 billion, highlighting the importance of liquidity in Europe.