Some deposits look risky, so authorities pull money out of banks

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(Bloomberg) — With Credit Suisse Group AG faltering this week and a handful of regional U.S. banks collapsing, company executives are growing increasingly concerned about where they can safely keep their cash.

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Some of them are taking money out of their banks and depositing it at other lenders, moving it into money market funds, or buying Treasury bills outright, according to corporate treasurers and advisors. The moves are leaving some banks with a sharp decline in deposits, while helping to lower lending rates on short-term government debt, fueling turmoil in financial markets.

Executives at companies ranging from startups to publicly traded entities said they are reviewing their cash and financing strategies and looking to mitigate potential risks – in cases where Silicon Valley Bank or other No ties to distressed lenders.

Disclo Inc., a startup whose software tracks health disclosures in the workplace, had more than $5 million in cash at a Silicon Valley bank when the lender failed on Friday. While US regulators reopened SVB for trading on Monday and depositors were allowed to withdraw as much money as they wanted, the collapse reminded Hannah Olsson, Disco’s chief executive and co-founder, that uninsured deposits are still may be at risk.

According to Olsson, the company opened new accounts at different Wall Street banks. It is also looking at diversifying its cash investments, which could include money market funds.

“We’ve learned that one account is not enough,” Olson said.

Other companies are also coming to a similar realization. Wall Street giants including Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. have raised billions of dollars in new deposits in recent days. All three banks declined to comment.

The yield on one-month T-bills fell below 4% this week for the first time since January as companies and other investors opted to hide in short-dated government obligations.

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Money market funds, which invest in short-term debt securities including Treasuries and commercial paper, have seen inflows of $97.1 billion since Friday and $108.21 billion in the last seven days, according to Crane Data, which tracks these funds. making the total balance $5.38. trillion – the highest level in their five-decade history, according to Crane.

Most of the recent inflow into money market funds has come from companies, said Peter Crane, president of Crane Data. “Given the seizure of SVBs on Friday, it is most likely that corporates will move away from uninsured deposits,” he said, adding that this trend will continue as companies seek to reduce their exposure to banks and access their cash. Wants to generate high yield on investment.

The difficulty for companies is that their money cannot be completely safe anywhere. Crane said, for example, that some T-bills could take a hit if Congress does not succeed in raising the US debt ceiling in the coming months.

Uninsured deposits are also looking risky after Friday’s Silicon Valley Bank failure. More than 93% of deposits were uninsured, and it was initially unclear whether customers would have access to that money on Monday. On Sunday, the US said depositors would have access to all cash starting the next day, but stopped guaranteeing all deposits across the system.

“People are using this as an opportunity to review and potentially change,” said Cameron Hazard, chief financial officer of Vancouver-based software firm ZoomInfo Technologies Inc. Until this week, Nasdaq-listed Zoominfo had its main bank account with SVB, which had about $20 million in cash over the weekend. Since then, the company has opened new bank accounts with two Wall Street banks. Its finance chief said ZoomInfo, which has about $300 million in cash, short-term investments in money market funds and other banks, is likely to further diversify its investments.

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First Republic Bank relies relatively heavily on uninsured deposits, which S&P Global Ratings cited Wednesday when it downgraded the bank’s credit rating. The nation’s biggest banks said Thursday they have agreed on a $30 billion deposit plan with First Republic to stabilize the lender.

The changes that corporate finance executives describe run the gamut from serious overhauls to minor changes to nothing at all. CNH NV, an equipment and services company headquartered in London, UK, said it is following a similar strategy as it did during the 2008 financial crisis, investing in short-term bank deposits, money market funds, Includes investment in commercial paper and securities. Those policies helped the company avoid losses, draw on credit and increase liquidity, said then finance chief Odon Inkisa.

According to Rocky Gupta, Vice President Finance and Treasurer of General Motors Company, General Motors Company is not planning to change its strategy. “We are quite diverse,” Gupta said.

more relationships

Some large companies have spent recent years streamlining their relationships, merging accounts and simplifying their treasury management systems, said Tony Carfang, managing director of Carfang Group, which provides treasury advisory services. It now makes sense to spread the wealth across more accounts, he said. According to Carfang, reducing credit lines and moving cash to treasury and money market funds can also help reduce risks.

“Prudent corporate treasurers will need to be reassured and to more relationships and money market fund accounts to mitigate counterparty risk,” Karfang said.

Cash balances of companies have increased as central banks around the world pumped in money during the early parts of the pandemic to help get economies back in action. For more than a year, the Bank of England, the Federal Reserve, the and others have been raising rates to tame inflation, tempting businesses to pull money out of bank accounts in search of higher returns. Banks have started passing on the higher rates to customers, but have left money markets and other vehicles behind.

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At $3.62 trillion, US corporate cash levels at of December were $329 billion below the peak recorded in December 2021, according to Carfang Group, which analyzed Fed data published last week. Still, corporate cash holdings climbed $109 billion in the fourth quarter compared to the previous quarter.

There are other options for CFOs and treasurers, including deploying cash in debt funds, or products that break deposits into smaller pieces across multiple depositories to be fully insured.

“We’ve seen large companies diversify their deposits within a matter of days or weeks,” said Catherine Berman, Cenote’s chief executive.

Some finance professionals had been looking for their exposure to the Silicon Valley bank for months. Andrew Casey, head of finance at Lacework – a cloud security software company – has taken strategic steps in recent months to clear out existing corporate accounts with the bank, open new accounts with other lenders, and sell highly-rated corporate and municipal bonds. Started short term investing in Treasuries along with money market funds to earn higher interest. Casey, who became Lacework CFO late last year, said it’s important to regularly re-evaluate cash strategies.

“You can’t set it and forget about it,” Casey said.

— With assistance from Olivia Raimonde.

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