Schwab clients withdraw $8.8 billion from prime funds in three days

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(Bloomberg) — Charles Schwab Corp suffered an $8.8 billion net outflow from its prime money market funds this week as investors scrutinized the brokerage’s flexibility amid questions about the health of the broader financial industry.

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

The outflows followed a weekend in which Silicon Valley Bank and Signature Bank failed, and investors scrambled to assess firms including First Republic Bank and PacWest Bancorp. Schwab’s banking unit had $14 billion of unrealized losses in its portfolio of near-to-maturity assets. Until the end of 2022, the company’s key executives will try to reassure investors this week that they have enough liquidity to weather market volatility.

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

“In a rising interest rate environment, our clients were increasingly taking advantage of 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. are doing.”

Schwab’s shares traded as low as $45 on March 13, their lowest intraday price in more than years. They are down about 24% since March 8, when depositors fled Silicon Valley banks and raised questions about the broader financial system. The stock fell 2.8% to $57.88 in regular New York trading on Thursday.

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The Schwab Fund is one of 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 Schwab funds have certificates of deposit from commercial paper issued by Deutsche Bank AG and Truist Bank as well as units of Citigroup Inc. and Bank of America Corp. Are. According to fund documents.

Prime funds are distinct from government and Treasury money market funds, whose popularity has grown since the financial crisis of 2008 and the market downturn in 2020 at the start of the pandemic.

According to Crane Data, a firm that specializes in monitoring the industry, investors flocked to Treasuries and government money market funds last week, pushing combined wealth fund assets to a record $5.39 trillion as of March 15. According to the firm, over $100 billion has flowed into money funds in the past week.

Schwab had inflows into its government and treasury funds on each of the three days, while there were outflows into its core funds, according to company data.

“We are experiencing flows 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 looks like it’s coming from bank deposit products more than anything else.”

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