By David Benoit 

Call it a reverse run on the bank.

Companies and consumers flooded U.S. banks with a record $1 trillion of deposits in the first quarter, when markets went haywire and America went dark to stop the spread of the new coronavirus.

More than half of it went to the four largest banks in America -- JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. The $590 billion in deposits they gained in the first quarter is nearly double the previous quarterly record of $313 billion for the entire U.S. banking industry, according to Federal Deposit Insurance Corp. data.

The biggest bank in America, JPMorgan, took in $273 billion in the first quarter. That is akin to swallowing another top-10 bank, said Barclays PLC analyst Jason Goldberg. "It's taken some of those banks 100 years to get into the top 10," he said.

Much of the $1 trillion flowed into the banks in a two-week span in March, according to a Wall Street Journal analysis of Federal Reserve data. During that time, companies were frantically drawing down on their credit lines and stockpiling cash in preparation for a severe recession.

The growth in deposits shows how different this crisis is from the last one. In 2008, America's biggest banks were the bad guys that nearly destroyed the economy. Now, they are a refuge for jittery consumers and businesses waiting out the shutdown.

"We believe companies viewed us as a safe haven in this period of stress, " Bank of America Chief Financial Officer Paul Donofrio said on a conference call with analysts last week.

The FDIC had assured companies and businesses that the banking system is a safe place to park money during the crisis, and Congress added more protection for bank accounts in its $2 trillion stimulus. The FDIC insures accounts up to $250,000, but the new law temporarily expands what types of accounts qualify.

Typically, a little over half of all deposits fall into insured accounts, according to FDIC data. But the vast majority of deposits in the first quarter flowed into corporate accounts, many of which exceed the FDIC cap.

Banks' loan books grew sharply in March, largely a result of companies draining their credit lines. Commercial loans at Bank of America, Citigroup, JPMorgan and Wells Fargo increased by an aggregate $235 billion in the first quarter, more than the industry's median annual gain since 1984, according to the FDIC. JPMorgan, Bank of America and Wells Fargo all surpassed $1 trillion in loans for the first time.

The banks also helped the biggest investment-grade companies raise hundreds of billions of dollars in corporate-bond sales.

Much of the borrowed funds ended up in deposit accounts at the same banks, executives said last week when the banks reported first-quarter earnings.

Citigroup borrowers drew down $32 billion on credit lines in the first quarter. The corresponding rise in deposits accounted for roughly a third of the $92 billion in corporate deposits the bank added in March, said Chief Financial Officer Mark Mason.

Bank of America Chief Executive Brian Moynihan said 75% of the $67 billion corporate borrowers drew down on their credit lines ended up in deposit accounts at the bank.

JPMorgan credited its deposit surge to the $55 billion in credit draws its customers made and the $380 billion in investment-grade bonds it helped sell in the quarter.

Figuring out what to do with all the new deposits is the problem. Because companies have never stockpiled cash quite like this before, banks aren't sure how long the money will stick around.

Banks make money on the spread between what they can pay depositors and what they can charge lenders. If the deposits aren't stable, they can't lend them out for fear of getting squeezed. The loan-to-deposit ratio for the industry has fallen to an all-time low, Barclays's Mr. Goldberg said, a sign the banks were holding back.

Write to David Benoit at david.benoit@wsj.com

 

(END) Dow Jones Newswires

April 23, 2020 15:54 ET (19:54 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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