LPL Financial said its interest income, net of expenses, increased to $40.2 million for the year ending December 31, whereas it had been only $25.5 million for the year ending December 31, 2017. The $15.7 million boost was due to rising interest rates, it says, whereas interest income had been flat between 2016 and 2017.
Raymond James Financial said in its 10-K that higher cash balances leads to increased interest income. It logged interest income at $193 million for the year ended September 30, 2018, up from $152.7 million for the previous year and $107.3 million in the year before that. The company’s Bank Deposit Program fees garnered $109 million for its Private Client Group for the three months ended December 31, 2018, up from $82 million from the same three months the year before (the amount almost doubled from its own RJ Bank from $21 million to $41 million).
Bank of America said in its 2018 10-K that higher interest rates helped boost its net interest income to $47.4 billion, up by $2.8 billion from the year before. JPMorgan Chase said in its 10-K for the year, “Net interest income was $55.1 billion, up 10 percent, driven by the impact of higher rates, loan growth and Card margin expansion, partially offset by lower CIB Markets net interest income.”
The Fickle Finger of Rates
But interest rates can be fickle in an economy facing possible recession, and broker-dealers can’t always count on them.
LPL Financial said in its February Form 10-K filing: “Our revenue from our cash sweep programs also depends on our success in negotiating favorable terms in current and future agreements with banks and money market fund providers participating in our programs, as well as our success in offering competitive products, program fees and interest rates payable to clients. The expiration of contracts with favorable pricing terms, less favorable terms in future contracts with participants in our cash sweep programs or changes in the cash sweep or money market vehicles that we offer, could result in declines in our revenue. A sustained low interest rate environment may also have a negative impact upon our ability to negotiate contracts with new banks or renegotiate existing contracts on comparable terms with banks participating in our cash sweep programs."