Executives Yank Money From Banks as Some Deposits Look Riskier

(Bloomberg) — With Credit Suisse Group AG having wobbled this week and a handful of regional US banks collapsing, company executives are getting more concerned about where they can safely keep their cash.

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Some of them are yanking money from their banks and depositing it at other lenders, moving it to money market funds, or buying Treasury bills directly, according to corporate treasurers and advisers. The rapid moves are leaving certain banks with quick drops in deposits while helping to pull borrowing rates lower on short-term government debt, adding to 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 reduce potential risks — including in cases where there is no connection to Silicon Valley Bank or other troubled lenders.

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

The company opened new accounts at separate Wall Street banks, according to Olson. It’s also looking to diversify its cash investments, which could include money market funds.

“We learned that one account isn’t enough,” Olson said.

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

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

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

Recent inflows into money market funds in part came from companies, said Peter Crane, president of Crane Data. “It’s most likely corporates diversifying away from uninsured deposits, given the seizure of SVB on Friday,” he said, adding that this trend will likely continue as companies seek to reduce their exposure to banks and generate higher yield on their cash investments.

The tricky part for companies is that their money may not be completely safe anywhere. Some T-bills, for example, could get hit if Congress doesn’t manage to raise the US debt limit in the coming months, Crane said.

Uninsured deposits look riskier as well after Silicon Valley Bank failed on Friday. More than 93% of deposits there were uninsured, and it wasn’t initially clear whether customers would have access to that money on Monday. On Sunday, the US said depositors would have access to all of their cash starting the next day, but stopped short of guaranteeing all deposits across the entire banking system.

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

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

The shifts that corporate finance officials describe run the gamut from serious overhauls to minor tweaks to doing nothing at all. CNH Industrial 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, including investing in short term bank deposits, money market funds, commercial paper and securities. Those policies helped the company avoid losses, draw on credit and increase liquidity then, finance chief Oddone Incisa said.

General Motors Co. isn’t planning changes to its strategy, according to Rocky Gupta, vice president finance and treasurer at General Motors Co. “We are quite well diversified,” Gupta said.

More Relationships

Some larger companies have spent recent years streamlining their banking relationships, merging accounts and simplifying their treasury management systems, said Tony Carfang, managing director of Carfang Group, which provides treasury advisory services. It makes sense to spread out assets across more accounts now, he said. Drawing down credit lines and moving cash into Treasuries and money market funds also can help with mitigating risks, according to Carfang.

“Prudent corporate treasurers have to reassess and move back to having more banking relationships and money market fund accounts to reduce counterparty risk,” Carfang said.

Companies’ cash balances surged as central banks around the world cranked open the money spigot during the early parts of the pandemic to help jolt the economy back into action. For more than a year, the Bank of England, the Federal Reserve, the European Central Bank, and others have been hiking rates to tame inflation, enticing businesses to pull money from bank accounts in search for higher returns. Banks have started passing on higher rates to customers, but tend to lag money markets and other vehicles.

At $3.62 trillion, U.S. corporate cash levels at the end of December were $329 billion lower than 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 with the previous quarter.

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

“We have seen large firms diversify their deposit holdings within a matter of days or weeks,” said Catherine Berman, chief executive of CNote, a women-led firm that helps companies put their deposits in credit unions and other community-based lenders.

Some finance professionals had been looking at their exposure to Silicon Valley Bank for months. Andrew Casey, the finance chief of Lacework — a cloud security software company — in recent months made strategic moves to empty corporate accounts held with the bank, opened new ones with other lenders, and launched short-term investments in high grade corporate and municipal bonds and Treasuries, alongside money market funds, to earn more interest. It’s important to regularly reassess cash strategies, Casey, who became Lacework CFO late last year, said.

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

–With assistance from Olivia Raimonde.