Clients of the largest U.S. banks withdrew funds this month at the fastest weekly pace since the Sept. 11 attacks as a deposit-insurance program ended and customers tapped into their year-end cash hoards.
Net withdrawals at the 25 largest U.S. lenders totaled$114.1 billion in the week ended Jan. 9, pushing deposits down to $5.37 trillion, according to Federal Reserve data released last week. The magnitude of the drop was second only to the decline after the Sept. 11, 2001 terrorist attacks, according toJason Goldberg, a New York-based analyst at Barclays
Customers may be moving money no longer insured by the U.S., drawing down year-end balances and investing in advancing equity markets. A Federal Deposit Insurance Corp. backstop, the Transaction Account Guarantee program, ended last month, prompting some analysts, investors and trade organizations to predict it could drive funds from the banking system.
“What you are seeing now is probably TAG money,” Subadra Rajappa, a fixed-income strategist at New York-based Morgan Stanley, said in a phone interview. “Some of the banks’corporate customers have said they were going to take the money out” if the program expires as it did, she said...
“If people were shifting out of bank deposits and looking for a government-type return we’d see more growth in Treasury funds,” he said. “It doesn’t seem to be happening.”
Treasuries had declined 0.31 percent this month through yesterday, Bank of America Merrill Lynch data show.
The Standard & Poor’s 500 Index climbed yesterday for the fifth straight session and has gained 4.7 percent in 2013. Global investors are the most bullish on stocks in at least 3 1/2 years, with close to two-thirds planning to boost equity holdings within six months, according to a Bloomberg survey.
Profit MarginsThe outflow follows a year in which total deposits from all sources and regions surged as much as 8 percent at the nation’s five biggest lenders, with the fastest pace set by San Francisco-based Wells Fargo (WFC)& Co. and Minneapolis-based U.S. Bancorp. Wells Fargo had $945.7 billion in core deposits at year-end. U.S. Bancorp reported $249.2 billion of deposits
2---Biggest Banks Back to Black in Fed-Fueled Recovery: Mortgages, Bloomberg
For all the money the government is collecting from banks tied to the worst housing slump since the Great Depression, lenders are still making record profits, thanks to policies that are driving the accelerating rebound. Loan originations totaled $1.75 trillion in 2012, the highest since 2009, according to the Mortgage Bankers Association, as homeowners took advantage of borrowing costs pushed down to record lows by the Fed and the White House expanded programs to help refinancing.
“They’ve come out from the self-inflicted gunshot wound to the head and are now starting to recover due to a government- induced set of policies and programs,” said Clifford Rossi, a former risk manager and managing director at Citigroup (C) Inc. who’s now at the University of Maryland’s Robert H. Smith School of Business. Policies intended to assist homeowners serve “to help the banking segment significantly,” he said.
Record EarningsBanks made record earnings from mortgages last year as they were able to lend at rates much higher than the bonds they were packaged into. That disappointed policy makers including New York Fed President William C. Dudley, after the central bank kept its benchmark interest rate near zero since 2008 and bought $40 billion of mortgage bonds a month to push down borrowing costs. The top four banks controlled about half of the origination market at the end of the third quarter, according to Inside Mortgage Finance.
Even with elevated profit margins, mortgage rates fell to 3.4 percent last week from 4.74 percent two years ago.
“The large banks are making a lot of money off of the Fed, and have been basically since it started buying mortgage backed securities,” said Walt Schmidt, a mortgage strategist at FTN Financial. “As long as the Fed continues to buy them in current volumes, there’s no way around it.” ...
While production may stay elevated in 2013, profits on home loans may shrink as minutes of the Fed’s December meeting, released Jan. 3, showed policy makers may end $85 billion monthly bond purchases this year. That could “spoil the party” for lenders that profited from a more than 20 percent jump in mortgage originations last year, according to Deutsche Bank AG.
“When the day is done you’ll see profitability cut in half, but that’s a four- to six-quarter process,” FBR’s Miller said. “And they are still going to make good money on mortgages.”
3---Investors Are Most Optimistic on Stocks in 3 1/2 Years, Bloomberg
4---BOJ Disappoints, Big Picture
5--Vital Signs Chart: Inventory of Homes for Sale Hits Lowest Point Since 2005, WSJ
6---U.S. Military Suicides Exceed Combat Deaths, National Interest
Pentagon figures obtained Monday by The Associated Press show that the 349 suicides among active-duty troops last year were up from 301 the year before and exceeded the Pentagon’s own internal projection of 325. . . . Last year’s total is the highest since the Pentagon began closely tracking suicides in 2001. It exceeds the 295 Americans who died in Afghanistan last year, by the AP’s count.
7---Existing Home Sales for December 2012, economic populist
Taking existing home sales by year is a different story. For the 2012 year, existing home sales increased 9.2% from 2011 and volume was 4.65 million sales. This is the highest annual number of sales since 2007's 5.03 million and the strongest yearly percentage increase since 2004. This month's existing home sales decline might have been pushed off the fiscal cliff as there were capital hill whispers about rescinding the mortgage interest tax deduction as well as potential massive tax rate increases.
Existing home inventory decreased 8.3% for the month or 1.82 million existing homes for sale. We have not seen inventory levels this low since January 2001. This is a 4.4 months supply and down 21.6% from a year ago. Inventories by months to sell at current sales volume is now at 2005 levels. Short supply also partially explains the increasing prices.