Schwab customers withdraw $8.8 billion from Prime funds this week

(Bloomberg) – Charles Schwab Corp. was hit this week by net outflows of $8.8 billion from its top money market funds as investors scrutinized the brokerage’s resilience amid questions about the health of the wider financial industry .

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Clients withdrew 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, data from the company compiled by Bloomberg. The data covers the three days up to March 15.

Schwab’s own government and treasury funds saw inflows on each of the three days, while its major funds saw outflows, according to company data.

Prime funds differ from government and treasury money market funds, which have grown in popularity since the 2008 financial crisis and since the market rout at the start of the pandemic in 2020. Prime fund assets have decreased by $18 billion across the sector for the week ending March 15. , while total money market fund assets grew by $121 billion, according to data from the Investment Company Institute.

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

The blue-chip outflows began after a weekend in which Silicon Valley Bank and Signature Bank failed, and investors rushed to assess companies such as First Republic Bank and PacWest Bancorp. active at the end of 2022, leading the company’s executives to seek to reassure investors this week that it has sufficient liquidity to ride out market volatility.

“While its larger exposure to fixed-rate securities resembles that of the fallen SVB, we see the risk of unrealized losses materializing as tempered by Fed relief and Schwab’s ability to generate cash in a organic,” according to Bloomberg Intelligence analysts.

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

“In a rising interest rate environment, our clients were taking advantage of rapidly rising yields and now, with market volatility, as expected, clients are looking for the relative safety of public funds,” he said. Peterson said in an email. “Within our money market funds, we are seeing a rotation from investment grade funds to government funds, which is typical in this market environment.”

Shares of Schwab traded at $45 on March 13, their lowest intraday price in more than two years. They are 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 in regular New York trading on Thursday.

Schwab funds are among the largest prime money funds in the United States, a product that generally invests in securities issued by financial institutions and non-financial corporations. Blue chip funds are a source of capital for many of the world’s largest financial institutions, and Schwab funds held certificates of deposit from Deutsche Bank AG and Truist Bank as well as commercial paper issued by units of Citigroup Inc. and Bank of America Corp., according to fund filings.

Investors rushed into government Treasury and money market funds over the past week, pushing combined money fund assets to a record $5.39 trillion as of March 15, according to Crane Data, a firm specializing in industry monitoring.

“We are seeing capital 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 come from bank deposit products more than anything else.”

(Add total primary cash outflows and add context to fourth and fifth paragraphs)

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