Synchrony willing to tap wholesale markets as deposit betas rise

Synchrony Financial is willing to tap the secured and unsecured wholesale funding markets, to better manage deposit betas as some of its certificates of deposits will mature in the second half of 2023, CFO Brian Wenzel said.

It is not because of any weakness in deposit flows, but rather to maintain an active presence in those markets, Wenzel said. In the first half of 2023, Synchrony had positive net flows of deposits every week, including the weeks of the bank turmoil, he noted.

"I think to some degree, when you go longer periods without being into those two markets, it becomes more costly for people to buy in and underwrite your name," Wenzel said during the bank's second-quarter earnings call.

Synchrony recorded a deposit beta on its savings accounts in the mid-70% range during the first half of 2023, while the beta on certificates of deposits was in the low-90% range, Wenzel said. For the back half of 2023, the company has increased its deposit beta expectation by roughly 10 percentage points and expects a beta on savings accounts in the mid-80% range and close to 100% for CDs.

Deposits currently account for roughly 84% of its funding stack, and it aims to maintain the funding mix where deposits account for over 80%, Wenzel said.

The need to tap wholesale markets comes as the competition for deposits is more intense, and its competitors have raised deposit rates to attract new funds in the second quarter, Wenzel said.

Some regional banks are experiencing commercial deposit outflows with companies running tighter on cash, and some commercial firms also changing their risk mitigation strategies, Wenzel said.

Certain financial institutions with large brick-and-mortar presence are trying not to have to raise their overall deposit rate but are using online products to offer higher rates, Wenzel noted.

"That dynamic really emerged, I'd say, late May into June," Wenzel said.