Mid-Month: Market Structure, Deposit Insurance, WAL, CFST
How could WAL keep deposits? Market Structure for bear runs, deposit insurance technology, CD rates, CFST CRE, Conversion multiples
5 Points includes a free monthly version and premium mid-month. This edition came early because of unusually high interest in the sector. Also, we are almost up to 100 paid subscribers; thanks to all.
If you believe any of the points below are incomplete or inaccurate, please reach out or leave a comment at bottom.
1. How Does Western Alliance (WAL) keep deposits?
The company actually grew deposits from March through April, though perhaps the put-buying campaign plus a nasty, rebutted story from the Financial Times has driven outflows more recently.
Assume though that you have a $1 million operating account and are looking at banks. What is your preference from the below:
Option 1 is Western Alliance using ICS sweep, a bank-sharing insurance arrangement which their relationships managers are calling clients about nonstop.
Option 2 is a community bank, where rates vary materially in markets like California and Arizona.
Option 3 is JP Morgan, with the comfort of brand and size (ICS sweep or others may be offered as well but JP Morgan would likely hand the cost to the customer).
Option 4 is Treasury / money market, running dry in a month.
Option 5 is Western Alliance combined with a portion of funds swept to money market, via treasury management.
Option 1 & 5 don’t look so bad, and would frankly seem preferable to JP Morgan to those who aren’t twitter doomscrolling or listening to daily macro podcasts, which is most people who run HVAC, drycleaning, property management etc.
Western Alliance can also put brokered CDs out, though to my knowledge they have not yet done so.
They can further use sweep networks like ICS to pull deposits in (also brokered, so to a limited degree). That option in yellow below doesn’t seem so bad when your bank is being attacked.
It’s great that banks can offer insurance and pay up for deposits, but can’t a bank still fail with deposit runs?
Anything is possible across liquidity balances, credit, loan mix, hedges etc., but asset yields matter. A bank is in better shape today if its assets yield above wholesale funding rates. See the important distinction below:
